cineworld theater

The price of Cineworld stock is declining by 66.7% this morning in mid-day trading action in London after a report from the Wall Street Journal stated that the company is preparing to file for bankruptcy as it has been unable to recover from the hit its finances took during the pandemic.

Shares of the British movie theater operator are declining to 324.6p this morning, this being the lowest level at which they have traded since the company went public in 2006.

Since August started, Cineworld stock accumulates an 86% drop after two days of severe declines following negative reports from the management in regards to the business’s financial performance after the pandemic.

According to the Journal’s report, the firm has appointed Kirkland & Ellis LLP and consultants from AlixPartners for advisory concerning the bankruptcy proceedings. In the United States, the company would reportedly file for Chapter 11 Bankruptcy while in the United Kingdom it could apply for insolvency.

Cineworld Bankruptcy Rumors Follow Disappointing Trading Update

Cineworld is the world’s second largest movie theater chain behind the US-based AMC Entertainment (AMC). Its US peer managed to withstand the hit that its business took amid the health emergency by taking advantage of the unexpected popularity of its shares among retail investors who coordinated efforts to pump the price, allowing the firm to raise capital by selling shares in the open market in 2021.

Two days ago, the company published a trading update that featured several downbeat comments about the business’s performance in a post-pandemic environment.

“Despite a gradual recovery of demand since re-opening in April 2021, recent admission levels have been below expectations. These lower levels of admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the Group’s liquidity position in the near term”, the senior management commented.

The company also stated that it was considering “various strategic options” to raise capital to shore up its finances and warned that these alternatives would likely result in “very significant dilution of existing equity interests in Cineworld”. Shares dipped 60% on the day that the announcement was made.

In regards to the WSJ report, a spokesperson for the company told Reuters: “We don’t have anything to add beyond the statement we made on Wednesday”.

Cineworld is expected to publish its financial results covering the first semester of the 2022 fiscal year on 22 September. It is unclear if the company will still share such an update if it effectively files for bankruptcy.

Cineworld Owed More than $9 Billion by 2021

In 2021, Cineworld produced total revenues of $1.8 billion. This figure was still 59% below the amount the company brought in 2019 before the pandemic started. The group managed to trim its net losses to $565.8 million by the end of this year compared to $2.65 billion it lost in 2020.

However, the company’s total liabilities stood at $9.2 billion while its total assets were $10.3 billion. As a result, the company is operating with negative equity and its land and borrowings schedules show that around $700 million worth of debt will be maturing next year.

The company has a revolving credit facility that demands a maximum net leverage ratio of 5x. In 2020, Cineworld negotiated a covenant waiver while the next testing date was June 2022. If the company failed to pass this test, this could have prompted the immediate repayment of the facility recently. Back in 2021, the face value of the RCF was $456.7 million. Cineworld had cash reserves of $354.3 million by the end of last year.

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