The Cineworld LSE:CINE train is slowly pulling out of Bankruptcy Protection Station, as management at the world’s second largest cinema chain announced last week that it was hopefully going to emerge from Chapter 11 next month.
In a note last week, the Brentford-based entertainment company said that 99% of its historic creditors of its term loans due to mature in 2025 and 2026 and 69% of its other outstanding creditors were supportive of its proposed debt restructuring plan and a backstop commitment agreement.
As previously reported in September 2022 Cineworld applied for Chapter 11 Bankruptcy Protection in the US and entered a Company Voluntary Arrangement (CVA) in the UK as its debts piled up during the Coronavirus lockdown following an aggressive acqusition spree, culminating in a failed USD3.6bn takeover bid for rival, Regal in 2017, which left Cineworld holding USD5bn of debt at a time when it was forced to close its doors.
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The subsequent pace of return of movie-goers – after nearly two years of the public being spoiled by Netflix binging and at-home streaming – or studio releases was not enough to help Cineworld service it debts and it was forced to call in the administrators, appointing law firm Kirkland & Ellis LLP, a bankruptcy expert and Alix Partners, a management consultancy specialising in corporate turnarounds to try and extricate it from the mess it had found itself in.
What followed, as reported, was an attempt by management to trade its way out of Chapter 11 and sell off its periphery assets. However, this process was doomed to failure from the start, as CEO, Mooky Greidinger resisted attempts to chop-up and sell the business his family had built-up over three generations, insisting only on a ‘whole-entity’ sale. Suitors, including UK competitor Vue Cinemas, were rebuffed in their attempts to acquire parts of the rump business – the UK, US and Ireland – whilst no buyers were found for the ‘Rest of the World’ portfolio.
Retail wipeout
Throughout the process, retail shareholders were given some hope they would recoup at least a little of the money they invested in the cinema chain, however in April, Cineworld management confirmed what many small shareholders had been expecting, that the restructuring would wipe out any equity in the business in favour of debt-holders as part of a restructuring plan. A small group of retail shareholders, the Cineworld Individual Shareholders Group is continuing its fight against the corporate behemoths arrayed against it in the hope of clawing back at least a small amount of the little guys’ investment.
Last month Cineworld got the green light from the US bankruptcy court to raise USD2.26bn as a backstop loan in its bid to exit Chapter 11 after the minority of lenders opposing the restructuring plan were settled with outside of court. The restructuring did not stop some of the cinema chain’s creditors, including landlords, taking their own more direct action, as shown by one landlord boarding-up Cineworld’s flagship 4DX screen in London’s Leicester Square last month after the cinema chain failed to pay rent. The backstop will in part pay the advisors involved in the restructuring process to date.In its latest communique, Cineworld again reiterated that its small shareholders are facing the prospect of getting nothing back once the firm removes itself from bankruptcy protection. Final court approval of the bankruptcy restructuring is scheduled for 12th June. The statement said that Cineworld would continue “business as usual”, which for the last nine months has been a bit like a travelling circus.
Cineworld opened trading today (5th June), at 0.924p but was down to 0.91p by lunchtime. The company’s shares are down -74.5% year-to-date and down -96.5% from a year ago. The company has a market capitalisation of GBP12.2m.
