If you tried to book seats at the immersive 4DX cinema experience at Cineworld LSE:CINE’s flagship premises in Leicester Square, London, today you might be stumped as to why you couldn’t find the (very expensive) seats on offer.
On further investigation (as that’s what journalists are supposed to do), it appears that the landlord has boarded up the premises, according to a report by Screen Daily. The report claims that the landlord had lost patience with the way that the debt-laden, embattled cinema chain was treating its creditors and taken decisive action.
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4DX – if you haven’t experienced it – incorporates on-screen visuals with synchronized motion seats and environmental effects such as water, wind, fog, scent, snow and more, to enhance the action on screen in order to fully-immerse the viewer in the world they are experiencing. The technology hasn’t yet integrated napalm effects, so it’s still safe to go down and watch reruns of Platoon.
The roll-out of 4DX cinema was seen as a way to attract new audiences to the cinema. By offering a more unique and interactive experience, 4DX can appeal to people who may not have been interested in going to the cinema in the past. This can help to boost cinema attendance and revenue, something that Cineworld is in dire need of.
Poor visuals
This development isn’t great visuals for the Brentford-based cinema chain which last month confirmed that any existing retail shareholders would be wiped-out in its debt restructuring plan as the movie theatre navigates its way out of Chapter 11 Bankruptcy Protection in the US and a CVA in the UK, following the cinema chain’s failure to find a buyer for its assets.
In the outline plan, Cineworld said it is planning to restructure its overhanging USD4.5m debt by raising an additional USD1.5bn debt as well as USD800m in equity. In the last month, Cineworld shares have been testing really how low they can go, and what is actually the bottom (in Cineworld’s case, management have lowered a plumb line over the side into the Mariana Trench).
Cineworld opened trading today (17th May), at 0.87p and had a micro-rally to 0.93p by lunchtime. There was a little excitement last month when Cineworld shares reached the dizzying heights of 1.63p on 19th April, but normal service was resumed soon after. The company’s shares are down -74.5% year-to-date and down -96% from a year ago. The company has a market capitalisation of GBP12.1m, a long way off from its valuation of USD12.8bn six months ago.
The 4DX debacle might indicate that landlords are eventually losing patience with Cineworld, and more closures may follow in the coming months. The report noted that the Leicester Square 4DX screen has a different landlord than the rest of the Leicester Square site and other screens there were open as normal. The Armchair Trader approached Cineworld for comment and clarification but had received no response by the time this article went to press.
As reported, the restructuring plan has secured the broad backing of creditors. Eighty-three percent of the lenders holding its 2025 and 2026 notes and its revolving credit facility, due to mature later this year, have agreed to the proposal, whilst 69% of its other debtors (holding longer-dated debt) have also acquiesced with the plan.
However, according to this press release, a small group of retail investors collectively owning more than 7% of the company’s free float stock and acting under the name ‘Cineworld Individual Shareholders Group’ has filed a motion to oppose the restructuring plan proposed by Cineworld and its creditors under the Chapter 11 Bankruptcy Case. The group is objecting to the plan on valuation grounds, claiming: “[…] since the [restructuring] Plan is centred on a complete restructuring of ownership and on financial recoveries, such Plan submission needs to be preceded by a factual, referential, clear and forward-looking valuation of the company, executed by an expert valuator named by the Court. Such a valuation never took place, or if it did, it happened behind closed doors and was never brought forward to the attention of the Court and other involved parties, except those parties which have collectively agreed and submitted the Plan.”
The group also objects to the restructuring plan as Cineworld management and its creditors “did not observe their mandate which should be centred on the interests of the company’s shareholders,” with, “[…] the intentions of the secured lenders to take over the company at a deeply discounted value and completely disregarding the rights of other stakeholders deriving from such debatable value.” The group accuses management of delaying publication of 2022 results, “[…] to conceal what is most probably a significantly improved and encouraging set of financial results, until after the Plan is approved, so that they can paint a bleak picture of the health of the business and undervalue it to facilitate the significant discounted value included as an assumption in the Plan. ”
Cineworld’s problems arose as it tried to aggressively capture market share in a debt-financed, pre-pandemic acquisition spree. However, some of its deals went sour, costing the movie theatre billions, and then Coronavirus hit. Footfall vanished overnight as cinemas globally were forced to shutter their premises. Movie releases then dried up and Cineworld still had a debt mountain of near USD5bn but no revenue. Despite trying to restructure its debts, things eventually became unsustainable and last September it was forced into Chapter 11 bankruptcy proceedings in the US and sought a company voluntary arrangement (CVA) in the UK.
As we stand, there will be some small people who are going to disappointed to not feel the latest offering from Disney’s Guardians of the Galaxy franchise in 4DX and will have to put up with plain-old ‘Glorious Technicolor, Breath-taking Cinemascope and Stereophonic Sound’ instead – nothing that a pack of Haribo Sours can’t fix. Sadly, it’s going to take a lot more than a bag of sweets to fix what has gone wrong at Cineworld.
