National CineMedia Files Plan, DS in Line With RSA; Unsecured Creditor Recoveries Wiped Out After UCC Appointment Triggers Deathtrap

Plan
Disclosure Statement
DS Approval Motion

On Wednesday night, April 26, debtor National CineMedia LLC, or NCM, filed its first plan of reorganization and disclosure statement premised on a restructuring support agreement with holders of its prepetition secured debt and nondebtor parent National CineMedia Inc., or NCMI. The plan is supported by approximately 79% of secured debt claims, according to the DS. The plan’s treatment of unsecured creditors reflects the recent appointment of an official committee of unsecured creditors, which triggered the downside scenario of an unusual “deathtrap” for unsecured creditors under the RSA.

In the RSA, the debtor had proposed that if no UCC was appointed, unsecured noteholders (with approximately $230 million in notes outstanding) would receive 5% warrants on account of their claims and GUCs would receive a distribution from a claims pool. The plan now eliminates the proposed warrants, consolidating the unsecured notes and GUCs into one class set to recover from a proposed $250,000 GUC claims pool. At the outset of the case, NCM told the court that it proposed the deathtrap because it lacks funds to provide recoveries to unsecured creditors while paying the expenses of a creditors’ committee.

Additionally, the plan now provides a class for GUC convenience claims, capped at $2,500, to be paid in full. The DS indicates that a liquidation analysis, financial projections and a valuation analysis are forthcoming.

As discussed in the DS, the foundation of the plan is a debt-to-equity conversion through which all of the debtor’s senior secured debt in Class 4 would receive 100% of the reorganized debtor’s equity pre-dilution. The equity distribution is subject to a reallocation of new NCM common units to NCMI under a settlement agreement, or the NCMI 9019 settlement, under which common units in reorganized NCM would be allocated to holders of secured debt claims on the plan effective date and then reallocated to NCMI. While secured debtholders would be issued new NCM common units making up approximately 86.2% of the reorganized debtor on a pre-dilution basis, NCMI would receive approximately 13.8% of pre-dilution reorganized equity.

The plan restructuring transactions would eliminate all of NCM’s debt, unless the debtor elects to seek exit financing on as-yet-undisclosed terms.

Under the NCMI 9019 settlement, NCMI would affirm its obligations under the joint venture agreements governing NCMI’s management of the debtor: a valuable tax receivable agreement, common unit adjustment agreement and management services agreement.

The NCMI settlement, which the debtor says is “a central part of the plan,” would maintain the corporate “Up-C” structure between the debtor and parent company National CineMedia Inc. This structure would “facilitate several key objectives of the Chapter 11 Case,” according to the DS, such as the assumption of key executory contracts including the exhibitor services agreements, or ESAs, with AMC Inc., Cinemark USA Inc. and Regal Cinemas Inc.

The conditions precedent to the effective date include the court’s entry of the “Regal approval order” and the assumption of the ESAs with Cinemark and AMC. The Regal approval order refers - to the extent the debtor enters into a new advertising services agreement with Regal following the termination of the current Regal RSA - to an order from the court approving NCM’s entry into a new Regal advertising agreement and finding that such entry does not constitute an amendment or modification of the Regal ESA, or result in an amendment or modification of the AMC ESA or Cinemark ESA. On the AMC and Cinemark ESAs, debtor’s counsel maintained at the April 12 first day hearing, “It’s our view we’re perfectly free to assume those agreements, and we intend to do so as is.”

NCM made clear in the RSA that it intends to assume the Regal ESA, but it stands ready to terminate the Regal ESA if the agreement is rejected in Cineworld’s pending chapter 11 cases and there is a final determination that NCM’s noncompete rights do not survive rejection - or if NCM enters into a new Regal advertising agreement. Cineworld’s motion to reject the Regal ESA, opposed by NCM, has long been a sticking point in the Cineworld chapter 11. Cineworld has said that it is in advanced negotiations with a third party to replace NCM as advertising services provider.

NCM’s DS provides an update on the Regal ESA fight, noting that Cineworld and NCM began mediation before Judge Christopher Lopez on April 14. NCM has lifted the automatic stay in its chapter 11 case to allow litigation over the Regal ESA to continue in the Cineworld cases, and a summary judgment hearing in the adversary proceeding filed by NCM is now scheduled for Monday, May 1, at 4:30 p.m. ET.

The hearing on conditional approval of the DS is scheduled for May 10 at 10 a.m. ET.

DS Approval Motion / Confirmation Timeline

The debtor’s DS approval motion proposes the following confirmation-related timeline:
 

• May 10: Voting record date;
• June 5: Voting resolution event deadline and deadline to file plan supplement;
• June 12 at 5 p.m. ET: Voting deadline and confirmation and final DS approval objection deadline; and
• June 23: Combined final DS approval and plan confirmation hearing.
   

Plan / Disclosure Statement

A chart of the plan’s classes, along with their proposed treatment, voting status and projected recoveries, is shown below:
 
Treatment of Claims and Interests

The debtor’s plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
 

• Class 1 - Other secured claims: On the effective date, each holder of an other secured claim would receive either payment in full in cash, the collateral securing its claim, reinstatement of its claim or such other treatment rendering its claim unimpaired.
   
• Class 2 - Other priority claims: On the effective date or as soon as reasonably practicable thereafter, each holder of an other priority claim would receive payment in full in cash or other treatment consistent with section 1129(a)(9) of the Bankruptcy Code.
  • Projected amount: “N/A”
  • Projected recovery: 100%
     
• Class 3 - Secured debt claims: Holders of secured debt claims would receive a pro rata share of 100% of reorganized equity, subject to:
  • Dilution by the management incentive plan (up to 10% of reorganized equity) and any reorganized equity issued after the effective date to ESA counterparties pursuant to the 2007 Common Unit Adjustment Agreement;
  • The proposed reallocation of 11.5% of such reorganized equity to NCMI pursuant to the NCMI settlement; and
  • The “Structuring Considerations” in Article 4.3.1 of the plan, which include:
    • The holders’ option to elect to have their reorganized equity immediately redeemed in exchange for NCMI stock, provided that all holders (other than NCMI) would “be deemed to have made an NCMI Election unless otherwise indicated in a notice to the Debtor and NCMI.”
    • The holders’ option to transfer their secured debt claims to one or more newly formed entities prior to or on the effective date, which entities shall be treated as holders of secured debt claims for all purposes of the plan; and
    • Holders of equity in blocker entities’ option to require that any such blocker entities be merged with or acquired by NCMI or an affiliate, such that the holders receive shares of NCMI common stock of an amount equivalent to the number of new NCM common units owned by such blocker entity as of the date of such merger or acquisition.
  • Projected amount: “$[●]”
  • Projected recovery: “[●]%”
     
• “Class 4 - General unsecured claims: Holders of general unsecured claims, including unsecured funded debt claims, would receive a pro rata share of the $250,000 GUC cash pool.
  • Projected amount: “$[●]”
  • Projected recovery: “[●]%”
     
• Class 5 - General unsecured convenience claims: Holders of general unsecured claims for less than $2,500 would be paid in full in cash on the effective date or the date due in the ordinary course of business.
  • Projected amount: “$[●]“
  • Projected recovery: 100%
  • Unimpaired; deemed to accept.
     
• Class 6 - Section 510(b) claims: Holders of section 510(b) securities claims would receive no recovery and their claims would be canceled, released, extinguished and discharged.
  • Voting status: Impaired; deemed to reject.
     
• Class 7 - Existing NCM interests: Holders of existing NCM common units would receive no recovery and their interests would be canceled.
  • Voting status: Impaired; deemed to reject.
     

Plan Milestones

The DS explains that the debtor is required to meet the following milestones under the RSA:
 

• June 12 (60 calendar days after the petition date): Deadline for entry of an order approving the DS;
• July 25 (105 calendar days after the petition date): Deadline for entry of the confirmation order; and
• 60 calendar days after the date of entry of the confirmation order: Deadline for occurrence of the effective date (subject to a possible 30-day extension associated with the timing for obtaining shareholder consent regarding certain issues).
   

Management Incentive Plan

Within 150 days after the plan effective date, the new board would adopt an MIP. The MIP would reserve for officers and directors of the reorganized NCM up to 10% of the shares of common stock of NCMI on a fully diluted and as-converted/exchanged basis.

NCMI 9019 Settlement

Under the settlement, NCMI would would be issued (or deemed to be issued) new equity in reorganized NCM in exchange for NCMI’s commitment to:
 

• Affirm its obligations under the JV agreements (other than the Regal ESA, if such agreement is terminated), including NCMI’s continued performance under the tax receivable agreement and CUAA;
   
• Maintain the Up-C tax structure on and after the effective date;
   
• Take all necessary corporate actions to facilitate the restructuring transactions;
   
• As manager of NCM, cause the issuance of new NCM common units to the holders of secured debt claims as set forth in the plan;
   
• Make the NCMI 9019 capital contribution of approximately $15 million of cash on hand to NCM on the plan effective date;
   
• Issue preferred stock of NCMI to the holders of secured debt claims (including the blocker entities) or their designee(s) or the tax blocker entities, entitling them to voting rights equal to the economic interests held by such holders in the reorganized debtor;

• Enter into a new tax receivable agreement with holders of new NCM common units that opt to not make an NCMI election and that do not participate in a blocker merger;

• Enter into director designation agreements between NCMI, NCM and certain members of the ad hoc group, providing those members the right to appoint directors to the new board. The director designation agreements will be included in a plan supplement; and

• Comprise the new board of NCMI.
   

On the effective date, NCMI would make a capital contribution to NCM of all existing cash that NCMI has on hand - estimated at approximately $15 million - in exchange for new NCM common units, which would be adjusted up or down depending on the exact amount of the capital contribution.

After giving effect to the NCMI 9019 settlement and the deemed issuance of additional new NCM common units under the agreement, and to the distribution to NCMI on account of secured noteholder claims that it holds: Holders of secured debt claims other than NCMI would receive approximately 86.2% of pre-dilution new NCM common units, and NCM would receive or be deemed to receive approximately 13.8% of pre-dilution new NCM common units. This is provided that on and after the effective date, the number of outstanding common shares of NCMI would be equal to the number of NCM common units that NCMI holds in the reorganized debtor.

The debtor asserts that the NCMI 9019 settlement paves the way for it to assume the ESAs by preserving the Up-C structure, thereby “ensur[ing] that NCM can provide adequate assurance of future performance under the ESAs and avoid disruption to NCM’s operations.”

Reorganized NCM Governance

Starting on the effective date, reorganized NCM would continue to be managed by NCMI under an amended LLC agreement and management services agreement.

NCMI Board

On the plan effective date, the board at NCMI would be replaced with a new board consisting of nine members. Six members would be designated by the requiring consenting creditors, three of which must be independent. Two directors would be nominated by NCMI’s current nominating committee and would both be independent. The CEO of NCMI would be the ninth board member.

The nominating committee in place before the effective date would appoint the initial directors for a term of one year, and any subsequent appointments would be made by the nominating committee as constituted after the plan effective date.

If, immediately after the effective date, Cinemark retains a 5% or greater interest in NCMI, then the new board would increase to 11 members, with Cinemark appointing the two additional directors, one of whom must be independent.

For the initial one-year period noted above, if reorganized NCM and NCMI collectively have more than $15 million in liquidity, including unrestricted cash and revolver availability, any related-party transaction with the consenting creditors or their affiliates at reorganized NCM or NCMI would require the affirmative consenting vote of (i) both independent directors appointed by the nominating and governance committee or (ii) two-thirds of the following: all independent directors of the board and the CEO in the aggregate, voting as one group.

Other Plan Provisions

The plan provides mutual releases by and in favor of the debtor, nondebtor affiliates, the secured indenture trustees and agents, holders of claims who accept the plan or abstain and do not opt out of the releases, and their respective directors, managers, officers, agents, certain professionals and other related parties.

The plan also includes exculpation provisions in favor of the debtor, the debtor, the independent manager, NCMI and current directors and officers of NCMI.

The process for selecting the new board of the reorganized debtor would be set forth in the plan supplement and no later than the effective date.