Cineworld is likely to emerge from bankruptcy protection, after it reached an agreement with its major lenders for a restructuring that will reduce its debt by more $4.5 billion.
A Chapter 11 filing in the United States will result in a debt-for equity swap, which gives control to the company’s lenders. There will also be an equity raising of $800 millions and $1.46 trillion of new debt financing.
Cineworld, as it stated in February, reiterated its belief that the size of the existing debt that was being written off under the rescue program meant that ordinary shareholders would not be left with anything. Its lenders will be able to take back 100% of the equity.
The new equity will be raised through a rights issue to existing lenders. The new debt facility will be used for the repayment of a $1.94 Billion financing facility that was part of Chapter 11.
Cineworld, which is the second-largest cinema company in the US, filed for bankruptcy protection in September. It was hit hard by disappointing summer audiences and a battle to pay its debts.
The Chapter 11 process would likely result in a debt-for equity swap, which hand control of the assets to its lenders. Cineworld, however, ran a parallel marketing process to pursue a value-maximising transaction of the group’s assets and focused on proposals for the whole group.
It received considerable interest from potential suitors , AMC, and Vue International. However, Cineworld today said that it would not sell its businesses in the USA, Britain, and Ireland “absent an All-Cash Bid significantly exceeding the value established under the restructuring”.
It said that it was still considering the proposals for its rest of world division to “assess whether an acceptable sale transaction could be completed”. CVC Capital Partners, Elliott Management and other bidders are believed to be for Cineworld’s operations across eastern Europe and Israel.
Cineworld stated that it would continue to operate its global business and cinemas “as usual” despite the disruption. Cineworld, its Regal, Cinema City and Planet brands, said they would continue to welcome customers to cinemas as normal. The group would also honor all existing customer loyalty programmes including Cineworld Unlimited in Britain.
Mooky Greidinger (70 years old) said that the agreement with our lenders was a vote in confidence in our business. It significantly advances Cineworld’s long-term strategy in a changing entertainment industry.
Cineworld was founded in 1995 and has more than 750 locations worldwide. It also boasts over 9,000 screens in ten different countries.
It had been listed on the stock exchange in 2007 and completed a transformational deal to purchase Regal, America’s second-largest cinema chain, for $5.8billion. However, it was left with $8.9bn of net debt, lease liabilities, and $8.9bn in net debt.
After agreeing to purchase Canada’s Cineplex shortly before the pandemic, its financial situation became more difficult. However, the company was forced to cancel the deal. Cineplex was awarded damages by the Ontario Superior Court of C$1.23 Billion (PS740 Million). Cineworld’s appeal is still on hold pending completion of Chapter 11.
Mooky Greidinger doesn’t see the half-true. Most people would consider presiding over a restructuring that removes $4.5 billion in debt and all equity as embarrassing. Cineworld’s Israeli boss is not one of them. The restructuring was a vote of confidence for the business and its strategy, according to the septuagenarian.
His love for cinema is undisputed. However, when lockdown was instituted to combat the pandemic, Greidinger, his brother Israel and the company’s deputy chief executives were forced into a fight for survival. Cineworld would have been in a dire situation if it didn’t have a mountain of debt.
Mooky Greidinger was a victim of self-inflicted injuries
A few self-inflicted wounds did not help his troubles. After being discovered by Israel’s antitrust authorities to have violated a merger agreement that required him to distribute eight films for children to a competitor operator, he received a six-month suspended sentence in prison.
Greindinger was also caught in a legal bind by trying to combine his purchase of Regal in the US with a takeover at Cineplex, Canada, right before the pandemic. Legal action was inevitable when Greindinger pulled out of the deal at the last minute. Cineplex was awarded damages of C$1.23 million by the Ontario Superior Court of Justice. Cineworld appealed but this is still on hold.
What happens to Cineworld’s boss after the bankruptcy threat has been avoided and the restructuring is complete? According to cinema industry gossip, creditors are looking to seize control of the business and create a new board where the Greidinger brothers will only play a temporary role.