Cineworld, reeling under heavy debt and facing falling box office receipts this quarter, said on Friday the giant movie chain is business as usual as it explores options.
The statement follows a report today that the UK parent company of Regal Cinemas is preparing to file for bankruptcy. Cineworld foreshadowed a potential Chapter 11 earlier this week when it noted “active discussions with various stakeholders” as it assesses “several strategic options to obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction.”
“All of our Cineworld and Regal theaters are open to the public as usual, and we continue to welcome our guests and members to our theaters around the world,” Cineworld added today.
“As we announced earlier this week, we are proactively evaluating strategic options to ensure we have the balance sheet strength and flexibility to adapt to market conditions, and that process continues. We are committed to the experience of our customers and to being the ‘Best place to see a movie’”.
High debt combined with soft box office receipts and, perhaps, a possible payment due to Canada’s Cineplex, are putting pressure. A Canadian court ruled in favor of Cineplex to the tune of $1 billion in a breach of contract lawsuit
No one believes that a bankruptcy means goodbye to Cineworld, rather a chain slimmed down and ordered. Alamo Drafhouse (although a much smaller circuit) has expanded rapidly and established a new generation of post-Covid theater experience after emerging from bankruptcy a year ago.
The exhibit has a history of downsizing through bankruptcy. In the early 2000s, Regal merged with United Artists and Edward Theaters when they all went bankrupt after a period of massive over-expansion.
“We have seen these kinds of reductions in the past. This is not about the death of the exhibition business,” said an industry executive.
The Chapter 11 talk, first reported in the WSJ, hit movie stocks hard, fair or not. From worst to best today: National Cinemamedia fell 8.7% to a dollar fifty; AMC Entertainment is down 7% to $17.91; Cinemark is down 4% to $16.35 and Imax and Marcus are down, respectively, 3.2% to $15.76 and 1.61% to $17.25
AMC is also facing a downdraft in meme stocks today after iconic retail investor Ryan Cohen unexpectedly dropped his stake in another one, Bed Bath & Beyond. AMC narrowly avoided bankruptcy several times during Covid, but its cash position is significantly stronger now and it is poised to start trading a new class of preferred securities, called APES, on Monday.
Theatrical doomsayers quickly emerge at signs of trouble.
“Talking is very exaggerated. There will be a restructuring. Cineworld is not going bankrupt. Some underperforming theaters will be closed. Those assets are probably not that exciting for others to come in and pick them up. Cineworld will keep its best assets and the impact on the industry will likely be minimal,” says analyst Eric Handler of MKM Partners.
“I guess we’ll have to see how big of a change creditors want to make. They may force the sale of some theaters. They may try to break up the business and try to spin off Regal,” he said.
He and others said Cineworld is considering bankruptcy because it over-leveraged its balance sheet with Regal, which it acquired in 2017 for $3.6 billion, meaning this is company-specific.
“AMC is very liquid. Same for Cinemark and Marcus. The risk of these three going bust soon is very, very, very low. What’s happening with Cineworld is much more self-inflicted because of its capital structure,” Handler said.
Imax and National Cinemamedia potentially have more exposure – Imax due to the screens installed in Regal theaters. But a bankruptcy to restructure means shutting down the most unproductive theaters, and that’s not where Imax auditoriums are normally located.
Executives at AMC, Cinemark and Marcus recently acknowledged the current shortage of new general-release studio products, but indicated in earnings calls that they could weather the August-September drought caused by post-production delays. This year has shown that the public is more than willing to return to theaters. Downtime will give way to black adam, black Panther: Wakanda Forever, Y Avatar: The Way of Water Premieres in October, November and December.