A poor set of films meaning weak ticket sales has prompted a profit warning from beleaguered cinema chain Cineworld, which has warned it will now have to restructure its capital, and existing equity owners will get severely diluted.
“Despite a gradual recovery of demand since reopening in April 2021, recent admission levels have been below expectations,” said the company. The biggest grossing film this year has been Top Gun: Maverick.
“These lower levels of admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group's liquidity position in the near term,” it said.
The warning comes after the company spent two years during the Covid-19 pandemic refinancing its way out of trouble, largely with advice from PJT Partners.
The news led to the shares more than halving in price to 8.1p by Friday morning, valuing the company at £134m. The shares have now fallen over 95% since the start of 2020. Cineworld embarked on a series of debt-funded acquisitions just prior to the pandemic.
Cineworld has significant operations in Europe and the US. That would make it most likely the group might use the US Chapter 11 process to restructure its debts, which stood on a net basis at US$4.84bn at the end of December 2021, according to a source close to the situation.
Some of the loans relate to specific properties in certain geographical locations, such as Eastern Europe. That might also indicate the group could be broken up. The source said it was too early to say. Cineworld reiterated that all options were being considered.
“The group remains in active discussions with various stakeholders and is evaluating various strategic options to both obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction,” it said.
“Any deleveraging transaction will likely result in very significant dilution of existing equity interests in Cineworld.” Its 751 cinemas, which in all have 9,000 screens, remain open.
Creditors are not understood to have organised themselves into a coordinated group yet. In the past, Houlihan Lokey has advised holders of term loans, which are trading at around 70 cents in the dollar. Lazard has advised holders of a separate super senior loan, which would be a critical component of any restructuring.
Another cinema chain, Vue Entertainment, last month agreed a recapitalisation plan seeing its lenders take ownership of the business. The debt-for-equity swap saw £465m of existing debt removed from the company’s balance sheet and a new £75m super senior facility installed.
Vue’s major shareholders were Canadian investors OMERS Private Equity and Alberta Investment Management. Vue was advised by Lazard, with Houlihan Lokey acting for lenders.
Cineworld’s biggest shareholder is Global City Holdings, which is linked to the Greidinger family, who manage the company.
The company has been in dispute with shareholders of Regal Entertainment, which it bought in 2017, and Cineplex. It agreed to buy the latter chain in February 2020, only to cancel that deal in June once the pandemic had begun.