3rd Apr 2023 14:40
(Alliance News) - Cineworld Group PLC's debt restructuring is a "sign of its lack of options" rather than a vote of confidence in the firm, XTB Chief Market Analyst Walid Koudmani said.
Cineworld on Monday said it has entered into a restructuring support agreement and backstop commitment agreement with lenders to support its financing plan.
Shares in the Brentford, London-based cinema chain fell 31% to 1.99 pence each in London on Monday morning. Cineworld was hit hard during the Covid-19 pandemic, as it saw the enforced closure of its cinemas. It also backed out of an acquisition agreement in Canada, leading to a legal battle.
Cineworld said that the financial restructuring will see it raise USD800 million through an equity offering to its lenders, as well as USD1.46 billion in new debt financing from its lenders, with these funds expected to reduce Cineworld's USD4.53 billion in debt.
Cineworld noted that the lenders involved hold 83% of its loans due in 2025 and 2026, and its revolving credit facility due 2023.
"After it became pretty clear that a deal for the whole group was unlikely, the cinema group had only a few options left. It seems that they've now chosen to give its creditors the ability to exchange debt for equity and will now most likely look to raise cash by selling assets outside of its core US, UK and European markets," Koudmani commented.
The firm said the proposed restructuring "does not provide any recovery for holders of Cineworld's existing equity interests", meaning that shareholders are set to receive nothing back as the firm's creditors receive 100% equity.
"Cineworld’s shareholders had been given plenty of warning their investment in the business could be wiped out by a debt restructuring and this looks like it will soon happen," said Danni Hewson, AJ Bell's head of financial analysis, adding that the deal is "yet another throw of the dice to try and sort out its finances".
Chief Executive Officer Mooky Greidinger said: "This agreement with our lenders represents a 'vote-of-confidence' in our business and significantly advances Cineworld towards achieving its long-term strategy in a changing entertainment environment.
"With a growing slate of blockbusters and audiences returning to cinemas in increasing numbers, Cineworld is poised to continue offering moviegoers the most immersive cinema experiences and maintain its position as the 'Best Place to Watch a Movie'."
Cineworld noted that it has terminated marketing for the sale of its US and UK & Ireland business, but that it will continue to consider proposals for the purchase of its rest of the world business.
"Keeping the US and UK operations and only potentially selling its Eastern European and Israeli sites will streamline the group and put it in a better position to ride the recovery in the cinema industry – if it comes," Hewson said.
Also looking ahead to what is in store for Cineworld, Hargreaves Lansdown's Sophie Lund-Yates points to a lack of customers driven by the cost-of-living crisis and the rise of streaming services as reasons for the downturn in business.
"These conditions are likely going to take a long time to fully unwind, with the sharp downwards revision in Cineworld’s share price suggesting some don’t think this will ever happen," Lund-Yates said.
While Koudmani notes that creditors have "seemingly made a bet that the revival could be sustained in the medium term" given a recent boost to cinemas due to blockbusters, AJ Bell's Hewson commented that "there will have to be some hard decisions made to make cinemas more appealing".
However, Hewson noted that the priority is "to slim down the size of the estate to focus on the best performing sites and only then think about what to do next."
By Harvey Dorset, Alliance News reporter
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