Cineworld hopes to edit escape thriller to rival Hollywood

When Cineworld, the world’s second largest cinema chain, admitted how close it was to collapse earlier this month, its management said part of the problem was the lack of Hollywood blockbusters to attract customers.

The company told investors that until the release of Black Panther: Wakanda Forever in November, the “limited film slate” would have a negative effect on admissions and on the liquidity of the debt-ridden company, which has been battered by closures and the exodus of moviegoers to streaming services.

But while there was a drought of big-screen entertainment, an action-packed thriller unfolded in Cineworld’s boardroom as its longtime boss ran out of options.

During the coronavirus pandemic, chief executive Mooky Greidinger twice brought Cineworld back from the brink of bankruptcy, persuading its lenders to agree to a bailout.

He had made his third-generation family business into a giant, riding a wave of easy credit to take over British chain Cineworld in 2014 and American company Regal Cinemas in 2018.

Now, however, his business has nearly $9 billion in debt and rental debt – brought on by ambitious expansion plans colliding with the pandemic – looks dangerously precarious, as ticket sales drag on and a payout of $1 billion over the botched takeover of Canadian rival Cineplex looms. the horizon.

Early last week, Cineworld confirmed that it was planning a Chapter 11 bankruptcy filing in the United States and similar proceedings in other markets. The bankruptcy process in the United States is expected to begin within weeks, according to two people familiar with the details.

Before the pandemic, its stock traded over 180p. At the end of that week it was just under 2 pence per share.

A former Cineworld executive told the FT that filing for bankruptcy would be “a serious emotional blow” to Greidinger and his brother Israel, who serves as deputy chief executive.

“They eat, dream and sleep in the cinema; [Cineworld] was their baby,” he said. But he added that “huge” had driven them to borrow too much in pursuit of the goal of supplanting US rival AMC as the world’s biggest cinema chain. When the pandemic hit, the business collapsed.

During an Israeli court hearing in June over a dispute over local distribution, Mooky said that because of the pandemic “our life’s work has collapsed”, according to local media. “I fight every day to save what we have built. I hope we will succeed, but it is not certain,” he added.

Once the Chapter 11 filing is complete, Cineworld’s biggest lenders – which include US investment managers Invesco, Eaton Vance and State Street – will almost certainly take control of the company. Cineworld’s remaining shareholders will be wiped out in the bankruptcy process.

Mooky Greidinger
© Rob Latour/Shutterstock

Mooky is expected to get a stake in the restructured company, according to two people with knowledge of the details.

The restructuring will also allow Cineworld to renegotiate its $4 billion in lease debt and reduce the amount of its payment by $1 billion following the cancellation of its 2019 deal to take over Cineplex. Cineworld is still appealing the case in Canadian courts, with the final decision due in September.

Another option being discussed as part of the restructuring is to sell Cineworld’s Eastern European business to pay off a group of lenders, the sources added. Cineworld declined to comment.

Law firm Kirkland & Ellis, along with restructuring consultancy AlixPartners and business consultancy PJT Partners, are working on the restructuring.

But as Cineworld fights for its survival, its executives, investors and industry rivals have had to ponder broader lessons: Has its meteoric expansion proven too risky, or are its problems symptomatic of an industry in terminal decline?

“In a normal world, Cineworld would be heroes right now but because of the epidemic they got caught” by their high level of debt, said an executive at a competing operator.

Cinemas fight to win back viewers from before the pandemic

The Greidinger family has been in the movie business for almost a century. Mooky and Israel’s grandfather established his first cinema in Haifa in 1930.

But Mooky is the first of the family to develop a taste for the international. He expanded the company – then called Cinema City – to Hungary in 1997, then to the UK and the US.

A former Cineworld executive said the expansion had worked “very well” until Cineplex’s $2.1 billion bid which, regardless of the pandemic, was “a bridge too far”. Tim Richards, chief executive of British cinema chain Vue, had been working on a bid for the 160-site Canadian chain, but pulled out.

When Cineworld’s board of directors met to approve the deal with Cineplex, only one of the twelve board members raised any objections. “The straw that broke the camel’s back was the acquisition of Cineplex,” said a person familiar with the talks. “No one was willing to stand up to them and say it was the wrong deal at the wrong time.”

In its March annual results, Cineworld said it had ‘wiggle room’ to meet its debt obligations provided US admissions – which account for two-thirds of revenue – returned to 85% of 2019 levels. in 2022. But according to data from Box Office Mojo, which tracks ticket sales, they were just 57% of pre-pandemic levels in the first quarter.

At the end of June, Cineworld was to make a $170 million payment to a group of former Regal shareholders and was to make a payment to banks for a revolving credit facility. Both were missed.

A short seller, who had been following the stock since last summer, said that at this point Cineworld was “so surprisingly and obviously bankrupt” that it had more than doubled its position.

A closed Regal Cinema and the AMC Empire 25 Cinema opened in Times Square in New York City during the COVID-19 pandemic
A closed Regal Theater and the AMC Empire 25 Theater opened in Times Square in New York City during the COVID-19 pandemic © Richard Levine/Alamy

“For two years, we have heard [from the company] if only they got a James Bond movie, if only they got Superior gunsaid Barry Norris, managing director of Argonaut Capital, which has sold the stock short since acquiring Regal in 2018. underlying business is just crap and they have too much debt.”

The news of Cineworld’s bankruptcy certainly shook up the entire industry. Last month, Vue, Europe’s largest private cinema chain, resorted to a debt-for-equity swap to stay afloat. AMC, which has even bigger debts than Cineworld, has been boosted in recent years not by strong finances, but by becoming a “stock meme”, popular among retail marketers.

The pandemic has not only temporarily shut down the industry, but has also accelerated its decline, industry experts say. “The heart of cinema is young people and they have broken that habit and are not coming back,” said media analyst Alice Enders. “Cineworld will not be the last theater to fail.”

Additional reporting by Christopher Grimes in Los Angeles

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