A bankruptcy court judge today gave a green light to a reorganization plan for Regal parent Cineworld, the key step needed for the giant movie theater chain to emerge from bankruptcy next month.
At a hearing, in an order from the bench, Judge Marvin Isgur of U.S. District Court for the Southern District of Texas said the agreement the parties had put together since Cineworld filed for Chapter 11 last fall was negotiated ‘at arm’s length,” “in good faith” and intended to preserve jobs and capital into the future across the far-flung business. With some details and wording still being worked out, “I am going to confirm the plan,” Isgur said.
Cineworld ran out of cash and couldn’t borrow more after prolonged Covid-related theater closures hit exhibition particularly hard. Recovery was slow, and the company’s already high debt made a reset impossible. The restructuring will shore up its balance sheet and provide significant additional liquidity. Specifically, it will erase $4.53 billion of debt. It calls for a rights offering to raise gross proceeds of $800 million, and provides $1.46 billion in new debt financing.
Shareholders of Cineworld, which trades on the London Stock Exchange, will be completely wiped out as the stock is delisted — to the distress of one UK caller who dialed into the hearing and was able to ask some questions. His line was often disturbed but the message clear: “This is a once in a 100-years event that has to do with people’s life savings,” he said. He singled out an agreement by Cineworld’s lenders, who are now its new owners, to pay CEO Mooky Greidenger, his brother Israel, and two other top executives a combined $35 million circa to remain at the helm during the company’s exit from bankruptcy, ensuring a smooth transition. It’s not clear who will ultimately run the company.
“Do you think that it is morally right for that to happen, and the shareholders get nothing? Why don’t you split that with the shareholders?” the caller asked.
An attorney for the debtors objected the word ‘moral’ as irrelevant.
He’s “a lay person,” the judge said, “What he means is ‘fair and equitable’.”
The attorney said the payment would derive “direct value to the estate” as it movies into its next phase.
Okay, but “Can you get your heads together and get the shareholders something, some scraps?”
The attorney said that cash would never have gone to shareholders in any case.
The exchange did prompt an explainer by Judge Isgur about who recoups in a bankruptcy. Shareholders are always last after secured and unsecured lenders and creditors.
“The law requires that those that have capital invested in a business get paid prior to the holders of shares. Shareholders take the first risk of failure of a business. That is true under the law of every state [and] federal law of the United States…and I think in most Western economies, but I am not absolutely certain.”
In this case, there is “there’s just not enough there” to pay everyone. “Debt get pays before equity and that is what happens, and that is what was going to happen today.”
“It’s not that I don’t care [about shareholders]. It’s not that I don’t stay up at night worrying about them. I want shareholders to hear that directly from me,” the judge said.
“This is not an attempt the steal the business form shareholders. The business was stolen by a disease, a virus, that spread around the world.”
The Greidingers were Cineworld’s biggest shareholders.