Cineworld is considering filing for chapter 11 to address a potential liquidity crunch, restructure more than $5 billion of debt and resolve a $950 million adverse court judgment, according to sources.
The movie theater chain is in discussions with an ad hoc group of term lenders advised by Arnold & Porter and Houlihan Lokey, and certain lenders have signed nondisclosure agreements to engage in confidential negotiations, the sources said. A DIP is expected, they added, as the company
noted the need for additional liquidity amid disappointing admission levels and a limited film slate anticipated to continue until November.
Despite a
covenant test for the quarter ended June 30, Cineworld has not engaged with its revolver lenders, the sources said. The lenders are
advised by Davis Polk and Lazard, as reported.
The company said yesterday, Wednesday, Aug. 17, that it is “evaluating various strategic options to obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction.”
Cineworld has until now avoided a holistic restructuring since the onset of the Covid-19 pandemic in March 2020 by incurring new debt, securing covenant waivers and amendments, and negotiating rent reductions. But the cash burn has remained stubborn, and the incremental financings the company secured restrict further capital raises without the consent of term lenders.
Cineworld is also on the hook for a 1.23 billion Canadian dollar (about $950 million)
judgment in favor of peer Cineplex as a result of a dispute over a canceled merger. Cineplex, advised by Moelis and Goodmans,
said in June that it remains focused on the Ontario Court of Appeal hearing scheduled for Oct. 12 and 13. Lawyers and financial advisors to an ad hoc group of lenders
advised investors at the end of last year that in a potential chapter 11 scenario for the movie theater chain, Cineplex’s awarded judgment would be an unsecured claim against holding company Cineworld Group plc.
Cineworld reported $354 million of cash as of the end of last year.
The company is advised by Kirkland & Ellis, PJT Partners and AlixPartners, as reported.
The dollar-denominated term loan was quoted today at 66.5/68, according to a trading desk.
Cineworld declined to comment, referring Reorg to the
trading update from yesterday.
Arnold & Porter, Houlian Lokey, Davis Polk and Lazard did not immediately respond to requests for comment.
--Harvard Zhang, Patrick Fitzgerald