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The shoe finally fell today as giant theater chain Cineworld filed for Chapter 11. The bankruptcy includes a $1.94 billion debtor-in-possession financing facility from existing lenders to keep things running.
Cineworld expects to emerge from Chapter 11 in the first quarter of 2023 and meanwhile will pursue “a real estate optimisation strategy in the US,” i.e. some closures or sales of theaters, along with “engaging in collaborative discussions with US landlords to improve US cinema lease terms.”
Cineworld “is confident that a comprehensive financial restructuring is in the best interests of the Group and its stakeholders, taken as a whole, in the long term, the company said. “Cineworld looks forward to working with its creditors and stakeholders to advance the Group’s efforts to restructure its balance sheet.”
The heavily indebted parent of Regal Cinemas filed in U.S. Bankruptcy Court for the Southern District of Texas. Cineworld had signaled distress last month and said measures it was considering included voluntary bankruptcy.
Here’s what it said today:
“Cineworld Group plc and its subsidiaries…, a leading cinema operator in 10 countries including the United States and the United Kingdom with 747 sites and 9,139 screens globally, today announced that Cineworld and certain of its subsidiaries (collectively, the “Group Chapter 11 Companies”) have commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of Texas.
As part of the Chapter 11 cases, Cineworld, with the expected support of its secured lenders, will seek to implement a de-leveraging transaction that will significantly reduce the Group’s debt, strengthen its balance sheet and provide the financial strength and flexibility to accelerate, and capitalise on, Cineworld’s strategy in the cinema industry. The Group Chapter 11 Companies enter the Chapter 11 cases with commitments for an approximate $1.94 billion debtor-in-possession financing facility from existing lenders, which will help ensure Cineworld’s operations continue in the ordinary course while Cineworld implements its reorganisation.”
Specifically, Cineworld expects to operate its global business and cinemas — including Regal, Cinema City, Picture House and Planet — as usual without interruption during the process and honor customer membership programs, including Regal Unlimited and Regal Crown Club in the United States and Cineworld Unlimited in the UK.
The company noted that any de-leveraging transaction will result in very significant dilution of existing equity interests — meaning stockholders — “and there is no guarantee of any recovery for holders of existing equity interests.” It doesn’t expect the Chapter 11 filing to result in a suspension of trading in its shares on the London Stock Exchange.
A proposed plan of reorganization will be file “in due course.”
“The pandemic was an incredibly difficult time for our business, with the enforced closure of cinemas and huge disruption to film schedules that has led us to this point,” said CEO Mookie Greidinger. “This latest process is part of our ongoing efforts to strengthen our financial position and is in pursuit of a de-leveraging that will create a more resilient capital structure and effective business. This will allow us to continue to execute our strategy to reimagine the most immersive cinema experiences for our guests through the latest and most cutting-edge screen formats and enhancements to our flagship theatres. Our goal remains to further accelerate our strategy so we can grow our position as the ‘Best Place to Watch a Movie’.”
With movie theaters closed for months, exhibition was among the industries hardest hit by the pandemic. And a string of tentpoles that buoyed attendance earlier this year box office trailed off into a soft slate for August and September.
Exhibitors with the highest debt were hardest hit. Cineworld took on significant debt acquiring Regal in 2018 for $3.6 billion. While the chain made some progress paying it down, it didn’t enter Covid on great financial footing. It carries debt of about $5 billion. Separately, Canadian judge ruled late last year the company is liable for more than $1 billion in damages for back out of a deal to buy Cineplex.
Another chain, Vue International is also being restructured. AMC Entertainment survived bankruptcy in large part due to its odd genesis into a meme stock, which inflated its share price and led to a series of beneficial transactions. Consolidation is considered inevitable for an over-screened U.S., especially as smaller chains star to run out of Covid relief funds.
Cineworld expects to operate its global business and cinemas — including Regal, Cinema City, Picture House and Planet — as usual without interruption during the process and honor customer membership programs, including Regal Unlimited and Regal Crown Club in the United States and Cineworld Unlimited in the UK.
Cineworld is taking steps to position our company for the future. Our cinemas remain open around the world, and we continue to welcome guests to the “Best Place to Watch a Movie.” Learn more: https://t.co/LeKH5WJZ95 pic.twitter.com/X8c9se20IT
— Cineworld (@cineworld) September 7, 2022