Regal Parent Cineworld “Open for Business as Usual”, Exploring Options – Deadline

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Cineworld, reeling from heavy debt and facing declining box office revenue this quarter, said on Friday the giant cinema chain was business as usual while it explored options.

The statement follows a report released today that Regal Cinemas’ UK parent company 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 evaluated “various strategic options to both secure additional cash and potentially restructure its balance sheet through a complete deleveraging operation”.

“All of our Cineworld and Regal theaters are open 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 towards our customers’ experience and to be the “best place to watch a movie”.

The high debt combined with weak box office receipts and, perhaps, a possible payment due to Cineplex of Canada, weigh heavily. Canadian court rules in favor of Cineplex to the tune of $1 billion in breach of contract lawsuit

Nobody believes that a bankruptcy means goodbye to Cineworld, rather a lean and tidy chain. Alamo Drafhouse (although a much smaller circuit) has grown rapidly and established a new generation of post-Covid theater experiences after emerging from bankruptcy a year ago.

The show has a history of resizing through bankruptcy. In the early 2000s Regal merged with United Artists and Edward Theaters as they all went bankrupt after a period of massive over-expansion.

“We have seen these kinds of entrenchments in the past. This is not about the death of the exhibition business,” an industry executive said.

The Chapter 11 chatter, first reported in the WSJ, has hit movie theater shares, Fair Trade or otherwise, hard. From worst to best today: National Cinemedia plunged 8.7% to $150; AMC Entertainment is down 7% at $17.91; Cinemark is down 4% at $16.35 and Imax and Marcus are down 3.2% at $15.76 and 1.61% at $17.25, respectively.

AMC is also facing a stock drop even today after iconic retail investor Ryan Cohen unexpectedly exited his stake in another of them, Bed Bath & Beyond. AMC itself has narrowly avoided bankruptcy several times during Covid, but its cash position is significantly stronger now and it is set to start trading a new class of preferred securities, called APES, on Monday.

Theatrical doomsayers quickly emerge at signs of trouble.

“The speech is very exaggerated. There will be a restructuring. Cineworld will not close its doors. Some poorly performing cinemas will be closed. These assets are probably not that exciting for others to come and pick them up. Cineworld will retain 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 the extent of the changes the creditors want to make. Maybe they’re forcing the sale of some cinemas. Maybe they’re trying to split the business and try to create a Regal spin-off,” he said.

He and others said Cineworld was considering bankruptcy because it overstretched its balance sheet with Regal, which it acquired in 2017 for $3.6 billion, meaning it’s somehow specific to the company.

“AMC has plenty of cash. Ditto for Cinemark and Marcus. The risk of these three going out of business anytime soon is very, very, very low. What is happening with Cineworld is largely self-inflicted due to its capital structure,” Handler said.

Imax and National Cinemedia potentially have more exposure – Imax due to screens installed with Regal Cinemas. But a bankruptcy to restructure means shutting down the most unproductive theaters and that’s usually not where the Imax auditoriums are.

Executives from AMC, Cinemark and Marcus all recently acknowledged the current shortage of new mass-release studio products, but indicated during earnings calls that they could ride out the August-September drought caused by post-production delays. This year has proven that audiences are more than willing to return to theaters. Downtime will be replaced by black adam, Black Panther: Wakanda Forever, and Avatar: The Way of the Water releases in October, November and December.

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