Sparks Fly Over Cineworld Bailout, But Judge Says: “I’m Not Going To Sleep Until We Get Those Employees Paid”; Bankrupt Chain Has Just $4M Cash On Hand
A federal judge sent a proposed $1.9 billion financing package for bankrupt Cineworld back to the table for a redo but said he’s committed to approving some kind of cash injection quickly for the Regal Cinemas parent.
Cineworld filed for Chapter 11 in the Southern District of Texas yesterday with a so-called DIP, or debtor-in-possession, loan from a consortium of lenders to keep operating while it cleans up its balance sheet. But Judge Marvin Isgur nixed $1 billion of that total earmarked, not for operations, but to refinance pre-petition loans from the same group of debtholders.
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At a hearing today, lawyers for Cineworld and a majority of DIP lenders seemed flabbergasted when the judge demurred, stressing Cineworld’s dire straits with just $4 million of cash in hand. That’s “not sufficient to run a global operation,” said James Mesterharm of AlixPartners, the chief restructuring officer Cineworld hired in August to examine its books, leading to yesterday’s bankruptcy filing.
Without the DIP loan, the chain would be forced to “curtail their operations, which would be to the detriment of all stakeholders,” he said.
The judge offered a few options, suggesting the DIP group set the $1 billion aside for now while they — or others lenders — first address Cineworld’s immediate cash requirements with a stopgap payout in the hundreds of millions, to keep the lights on, something he said he would sign immediately. “I am not going to sleep until we get those employees paid tonight,” he said.
The judge also offered a high guaranteed yield of more than 20% to lenders willing to advance cash to Cineworld.
“I am trying to be flexible, The only goal there is that the billion dollars has to be delayed until I give people an opportunity to deal with it.” Creditor committees with their own financial advisors will to be set up, he said, as is routine in bankruptcies, and “perhaps propose an alternative.”
“This case was filed 26 hours ago and I am not going to decide the outcome of the case today.”
Michael Messersmith, an attorney representing 52% of the DIP lenders, said he’d do his best but “our group does not control 100% of the priority terms loans.” That is “causing me some angst. But we are creative lawyers, so I am hoping to be able to overcome that angst. We are going to work extremely hard to get there.”
“We need the money tomorrow. The only party who would provide it are the existing lenders. There is nobody standing by in place with a loan,” said Christopher Marcus of Kirkland Ellis, an attorney for Cineworld.
Isgur sent everyone out to renegotiate, asking them to return later in the day with a new proposal.
The hearing opened with a presentation of Cineworld history as a family company started by CEO Mooky Greidinger’s grandfather from one movie theater in Israel, growing to a state-of-the-art international behemoth. It was paying down debt and generally thriving, said Kirkland & Ellis, until crippled by Covid theater closures, weak attendance and a temperamental studio release schedule . A $1.24 billion judgement against it by Cineplex of Canada is under appeal, with a hearing scheduled for October. A bump in admissions early this year was promising but tentpoles dried up in late summer, tipping the chain into Chapter 11.
There hearing also including some pointed questioning by landlord representatives about the terms of the DIP. Cineworld holds over 500 leases in the U.S. and pays monthly rents of about $60 million. It didn’t meet most of its lease payments in September.
Hollywood studios and other vendors were listed among Cineworld’s biggest unsecured creditors in its Chapter 11 filing.
MORE to come
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