Cineworld considering filing for bankruptcy in US

22nd Aug 2022 07:18

(Sharecast News) - Cineworld confirmed on Monday that it is considering filing for bankruptcy in the US as it looks to access near-term liquidity.

Responding to press speculation, the company said: "The strategic options through which Cineworld may achieve its restructuring objectives include a possible voluntary Chapter 11 filing in the United States and associated ancillary proceedings in other jurisdictions as part of an orderly implementation process. Cineworld is in discussions with many of its major stakeholders including its secured lenders and their legal and financial advisers.

"Any such filing would be expected to allow the group to access near-term liquidity and support the orderly implementation of a fully funded deleveraging transaction. Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees. As previously announced, any deleveraging transaction would, however, result in very significant dilution of existing equity interests in Cineworld."

Shares tumbled on Friday after the Wall Street Journal reported that Cineworld, which owns Regal Cinemas in the US, was preparing to file for bankruptcy within weeks after struggling to rebuild attendance from pandemic lows.

The WSJ cited sources as saying that Cineworld had engaged lawyers from Kirkland & Ellis LLP and consultants from AlixPartners to advise on the bankruptcy process. It said Cineworld was expected to file a chapter 11 petition in the US and was also considering filing an insolvency proceeding in the UK.

The company said on Monday that its Cineworld and Regal theatres globally are open for business as usual.#

At 0825 BST, the shares were down 4.2% at 3.90p.

AJ Bell investment director Russ Mould said: "While it might provoke a few dozen think pieces on the demise of the cinema, in reality Cineworld's problems stem from an overly aggressive growth strategy which relied on using huge amounts of debt to buy US chain Regal.

"This may have made Cineworld one of the largest cinema operators in the world, but bigger isn't necessarily better and the pandemic swiftly exposed the company's strained balance sheet.

"Filing for bankruptcy in the US to allow a restructuring of its finances probably gives Cineworld more flexibility than if the business went into administration under UK rules. However, shareholders don't need a movie trailer to tell them more pain could be coming their way."

Victoria Scholar, head of investment at Interactive Investor, said: "The company has been destroyed by the pandemic. Covid meant that cinemas were closed for many months, Hollywood was unable to churn out hits and consumer preferences shifted towards streaming instead which has caused lasting damage for ticket demand even after movie theatres reopened.

"On top of that, Sky for example now releases new blockbusters at the same time as the cinemas, again reducing the incentive to leave the house and organise a cinema trip. Plus, Cineworld has been dealing with problems of its own with its £700 million damages bill for abandoning its takeover of Cineplex, landing the embattled cinema chain with an unmanageable debt pile."