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National CineMedia, Shaken By Ad Woes, Cineworld Bankruptcy, Gets New Ten-Day Extension On Interest Payments; What Lies Ahead

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National CineMedia said today it’s negotiated a second extension of the grace period on interest payments originally due Feb. 15.

A one-month grace period for a payment said to be about $6.6 million ended March 15, when the company announced lenders had agreed to another 17 days. Big ratings agencies Moody’s and S&P Global declared the cinema advertising firm in technical default then and raised the possibility of a restructuring.

With that deadline set to expire, the company has revealed in a SEC filing another ten-day reprieve – or a total grace period upped from 47 to 57 days — to pay interest on 5.75% senior unsecured notes due in 2026.

It reiterated it “has sufficient liquidity to pay interest on the Notes” but that “extending the grace period will enable [it] to continue engaging in negotiations with … lenders regarding [its] indebtedness. At this time, no agreement has been reached regarding NCM LLC’s indebtedness.”

The shares fell 8% to 13 cents today. It’s been a penny stock for some time and said last year it had been notified by Nasdaq that it risks a delisting.

Moody’s downgraded its credit profile, “reflecting the view that the risk of default is high.”

“A difficult macro environment, uncertain advertising demand and the recent bankruptcy filing and litigation of NCM’s primary exhibitor partner will make it difficult for NCM to improve earnings to a level that is supportive of its current capital structure,” the agency said. The partner it’s referring to is Regal Cinemas, whose parent Cineworld filed for Chapter 11.

S&P lowered its rating to D from CCC, writing last week, “We view the delayed interest payment as a default.” It expects the company “to engage in an in or out-of-court restructuring.”

The company is the biggest player for in-cinema advertisting, followed by Screenvision. The two tried to merge in 2014 and probably should have to gain a stronger position in the market but the Justice Department filed suit to block the deal and it fell apart.

It was hard hit by Covid when theaters were closed, then advertising was slower to pick up on movie screens even when it returned to robust levels elsewhere as life resumed. Then two things happened: inflation and rising interest rates sparked recession fears starting last year and advertisers have pulled back across the board; and Cineworld, the parent of National CineMedia’s biggest customer and part-owner Regal, filed for bankruptcy in September. Cineworld is closing some Regal theaters. It’s also trying to exit or renegotiate its long-term contract with National CineMedia and its not clear how that will shake out. Regal contributed more than 30% of National Cinemedia’s annual network attendance pre-pandemic, Moody’s noted.

Cineworld lawyers said at a hearing this week that hey hope to present a restructuring plan imminently and there’s an April 20 date set to go over it with the judge.

“It’s sad. It’s still a great company, still a viable business. None of the bad things that happened to them have been their fault,” said one industryite who knows the company.

National CineMedia Inc. owns 47.5% of NCM with the remaining interest split between founding members Cinemark (25.4%), Cineworld/Regal (23.6%) and AMC Entertainment (3.5%). Its ownership and board structure, by and with its biggest customers, who also happen to be business rivals, has created complexities from the start.

Early this month, it entered into retention agreements, offering payments to CEO Thomas Lesinski, CFO Ronnie Ng and head of sales and marketing, Scott Felenstein.

Analysts generally kind of like the company and see its business improving along with box office attendance, but acknowledge challenges and that it has fallen out of favor with investors for obvious reasons. One analyst, Eric Wold of B. Riley, said earlier this month the firm is dropping coverage of National CineMedia “due to a reallocation of resources. Our final rating is Neutral, with a final price target of $0.25.”

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