Britain’s Cineworld files for bankruptcy protection in the United States

As the cinema chain continues to struggle under $5 billion in debt, Cineworld has confirmed it may file for bankruptcy in the U.S.

The COVID-19 pandemic has been tough on the movie industry. With theaters closed around the world, studios have been forced to delay release dates and rethink their distribution strategies. Unfortunately, not all companies have been able to weather the storm.

On October 5th, Cineworld, the second largest movie theater chain in the world, filed for Chapter 11 bankruptcy protection in the United States. The company cited “substantial” debt and the ongoing closure of its theaters as the primary reasons for its decision. With nearly 30,000 employees and 9,500 screens in 7 countries,

Cineworld’s bankruptcy will have a significant impact on the global box office. While it remains to be seen how this will all play out, one thing is certain: the pandemic has changed the movie business forever.

According to the company, which also owns Picturehouse in the UK, its cinemas “remain open for business” and jobs will not be affected significantly. However, this is a clear warning for cinemas all over the United Kingdom, as the same fate may come over to our borders sooner rather than later.

Cineworld files for Chapter 11 bankruptcy protection in US

Cineworld, one of the world’s largest movie theatre operators, has filed for Chapter 11 bankruptcy protection in the United States. The group operates 751 movie theatres including more than 500 in the United States, more than 100 in Britain and Ireland, and others across Europe and Israel. Cineworld said that it had been “adversely affected by the unprecedented circumstances” of the Covid-19 pandemic, which has led to the closure of all its theatres since mid-March.

Chapter 11 bankruptcy protection will allow Cineworld to continue operating while it restructures its business. The company said it was confident that it would be able to emerge from bankruptcy “as a stronger company”.

The pandemic caused chaos for film

Over 28,000 people are employed by Cineworld worldwide. Cineworld was also hard hit by the pandemic, like other cinema chains. With customers unable to go out to see the latest blockbuster releases, earning money and maintaining a stable cashflow became almost impossible for the international company.

Due to social distancing rules, many theatres were forced to close for extended periods during lockdowns. This stopped the money being pumped into even the largest cinema chains in the world.

Following the lifting of lockdown restrictions, movie chains were hoping to draw audiences back in with massive film releases like the latest James Bond film, No Time to Die, Top Gun: Maverick and Thor: Love and Thunder.

Tom Cruise’s Top Gun: Maverick has earned $1.8 billion at the global box office, making it one of the top 10 highest grossing movies of all time. In spite of this, Cineworld warned last week that there were still not enough major releases to attract cinema audiences and that this was hurting admissions.

As a result of films such as Avengers: Endgame and Frozen 2, global box office takings hit a record $42.5bn in 2019 before the pandemic. The box office performance of Jurassic World Dominion and Minions: The Rise of Gru has been strong so far in 2022.

Overall box office takings are down 32% from last year, compared to around a third in 2019. Additionally, during the lockdowns, streaming services surged in popularity, competing with cinema chains.

During the Coronavirus outbreak in 2020, Cineworld and AMC, which owns Odeon Cinemas, criticised Universal Pictures for releasing Trolls: World Tour online when theatres were closing.

The rising living costs hold back audiences

The ever-rising cost of living in the UK is halting people’s spending habits, as they have had to shell out more cash on household bills. This has further stopped people from heading out to their local cinema multiplexes and has even taken a toll on some of the world’s biggest streaming services. The future of film in the UK certainly looks bleak right now.

Following this, Cineworld signed a deal with Warner Bros to show films in theatres before they are streamed. In recent months, Netflix has reported a sharp drop in subscribers due to the rising cost of living.

Cineworld shares plunged 60% on Friday after The Wall Street Journal reported the company would file for bankruptcy “within weeks”.

In a statement on Monday, Cineworld said it was exploring various restructuring options, including filing for Chapter 11 in the US. In this way, a company can continue to operate while negotiating with its creditors.

There was no comment from the company on whether it was considering liquidation in the UK, or what impact it might have on its 4,600 employees there. If Cineworld or Picturehouse files for bankruptcy, it would not be drawn on what will happen to people who own memberships or vouchers.

In a statement, Cineworld said: “Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees.”

In the UK and Ireland, Cineworld has 128 cinemas. Across more than 750 locations, it has 9,189 screens. The company operates in 10 countries, including the US, Poland, and Israel. The market value of Cineworld is around $69m, but the company is indebted to the tune of close to $5 billion.

Through acquisitions around the world, the firm has grown. As a result, the Canadian firm sought substantial damages from Cineworld after ditching a plan to takeover Cineplex two years ago.

There was a slight recovery in Cineworld shares on Monday morning. While the share price has fallen from 220p before the pandemic struck to just over 4p now, it is still a long way from where it was at the start of 2020

Cinemas to stay open for now

If Cineworld is to enter administration in the UK it will have to file separately for insolvency in the UK. There are a number of rescue options open to the business, the UK arm may opt for something known as a company voluntary arrangement.

This means that the theatres will remain open and continue to trade as normal while a deal is agreed between creditors so you can still catch a film. One hurdle will be to get landlords and debt holders to vote in favour of a deal to allow theatres to shut and reduce its rent bill, keeping the rest of the business alive.

One other option the could use is something known as an equity swap would be considered to save the chain. This means the owners of the cinema chain’s debts end up owning the business while the investors who bought its listed shares will end up with nothing.

If this scenario happens, customers who have a membership pass are likely to have their credits honoured. Those with a membership card pay from £9.99 a month to see films anytime they like as often as they want.

It’s not the first time Cineworld has run into trouble in the UK, the business narrowly escaped bankruptcy in 2020. But creditors handed it a lifeline after stepping in to help.

The UK-founded company also owns cinemas under the Regal Cinema brand in the USA. It acquired the Regal chain in 2018 for $3.6 billion and was founded in the UK in 1995

Cineworld struggles to find buyer after falling into administration

The chain, which went into company administration last year, has issued an update and warned that more than 100 of its theatres could close.

Last Autumn, Cineworld entered administration; they have since provided an update while they search for a buyer for the company. The movie theatre operator said it has a number of potential purchasers, but none is willing to pay the full $5 billion price for the entire operation.

A total of 129 theatres in the UK and Ireland may have to close if they are unable to find a buyer. In addition, Cineworld has about 28,000 employees worldwide.

The company has stated that it is still fully operational and anticipates emerging from bankruptcy protection before the middle of 2023. While plans are being considered, however, its future is still unclear.

The company has now received non-binding approaches from a number of possible transaction counterparties for portion or all of the group’s business, according to a Cineworld representative.

While no decision has been made regarding whether to pursue a sale transaction and the terms of any such transaction remain uncertain, based on the proposals received thus far, it is not anticipated that any sale transaction will provide any recovery for the holders of the company’s equity interests. The company is reviewing such proposals in collaboration with its advisers and key stakeholders.

Full list of 129 Cineworld cinemas at risk of closure

Cineworld operates 103 cinemas under the Cineworld brand across the UK and the Republic of Ireland and a further 26 under Picturehouse brand.

Cineworld cinemas at risk of closure