Thu 08/06/2020 15:00 PM
Relevant Items:
Cinemark’s Covenants Tear Sheet
Cinemark’s Debt Documents

This week, Cinemark released its financial results for the quarter ended June 30. In March, the company shuttered all of its theaters, which with the exception of five domestic “test and learn” theaters have remained closed throughout the second quarter. Since its operations ground to a halt, the company has issued $250 million of senior secured notes and fully drawn on its $100 million revolving credit facility.

On the second-quarter earnings call, the company disclosed that it is “recalibrating our phased reopening of our domestic theaters and currently expect approximately one-third to open on August 21, another third on August 25, and the remaining third on August 28th.”

The company’s capital structure as of June 30 is as follows:
 
 
Covenant Relief Amendment, Declining EBITDA

On April 17, the company entered into an amendment with revolving lenders under its term loan and revolving credit agreement pursuant to which the 4.25x secured leverage ratio financial maintenance covenant was suspended for the September and December 2020 quarters, as long as the company maintained a minimum quarterly liquidity of $100 million and agreed not to pay dividends, make investments or prepay any outstanding junior debt, other than dividends on preferred stock and the company’s outstanding senior unsecured notes due 2023.

As of June 30, based on LTM adjusted EBITDA of $297 million, the company’s secured leverage was around 1.42x, and assuming constant outstanding debt and cash, the company could have let its LTM adjusted EBITDA fall to $99 million before it would have breached the 4.25x secured leverage test.

Nevertheless, although the company had a comfortable cushion for EBITDA declines under the maintenance covenant as of the June quarter, the closure of its movie theaters as a result of the coronavirus has resulted in significant EBITDA declines in 2020, as illustrated below:
 

Given that adjusted EBITDA for the third quarter of 2019 was $170 million, if the company’s third-quarter 2020 adjusted EBITDA is less than negative $28 million, its LTM adjusted EBITDA will be less than $99 million.
 
Updated Covenant Conclusions (as of June 30)
 
  • Debt and liens - As of June 30, the company could incur $472 million of secured debt and Cinemark Holdings could incur a significant amount of unsecured debt.
  • Dividends and Investments - Assuming the restrictions of dividends, investments and prepayments were not in effect or if EBITDA were to improve and Cinemark opted to have the maintenance covenant reinstated, as of June 30, the company could pay dividends and make investments using $300 million of shared capacity and could pay an additional $132 million of dividends and make $263 million of additional investments.
  • Prepayments - The company is not restricted from purchasing its unsecured notes due 2023 in the open market and can generally pay dividends on preferred stock.

--- Maribeth Lemen
 
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