Cineworld shares collapse over bankruptcy fears

Shares in Cineworld plunged 85% in value this week to 2.68p after the company admitted it was considering filing for bankruptcy in the US.

The UK-based cinema operator, which owns the Cineworld, Picturehouse and Regal chains, said it may enter Chapter 11 bankruptcy protection to “access near-term liquidity and support the orderly implementation of a fully funded deleveraging transaction.”

Cineworld added that its theatres were still “globally open for business as usual” and that it would “expect to maintain its operations… and continue its business over the longer term with no significant impact upon its employees.” However, the company told shareholders that “any deleveraging transaction would, however, result in very significant dilution of existing equity interests in Cineworld.”

Cineworld’s struggle post-Covid-19

Last week the company issued a statement saying that it was considering restructuring. It said that recent admission levels had been “below expectations” due to a limited film slate and that this would hit trading and Cineworld’s liquidity position in the near term. As such, the company said it was considering restructuring its balance sheet “through a comprehensive deleveraging transaction,” which would likely lead to a “very significant dilution of existing equity interests in Cineworld.”

The company’s share price has collapsed by 96% in the past year.

Cinema chains, including Cineworld and AMC, have all faced an uphill struggle in recovering from the Covid-19 pandemic, even as customers have returned.

While blockbuster film releases, such as Top Gun Maverick and Spiderman: No Way Home, have boosted ticket sales this year, experts warn that there are few such major releases are expected this autumn. What’s more, many cinema operators, such as Cineworld, are already struggling with substantial debts.

Cineworld’s debt mountain

The company has debts of $4.8 billion following its purchase of US chain Regal, along with lease liabilities of $4 billion. It could also have to pay $1 billion in damages after its failed bid to buy Canadian chain Cineplex.

Short seller Argonaut Capital Partners LLP’s Barry Norris told Bloomberg Television this week that Cineworld’s capital structure had become “completely unsustainable,” because it had funded its acquisition spree with debt. Norris added that the company could have raised further equity but hadn’t and was “run on a wing and a prayer”.

Prior to the Covid-19 pandemic in 2019, Cineworld’s shares previously changed hands for as much as £3. However, with so many issues on the horizon and the prospect of further shareholder dilution or bankruptcy, the shares are best avoided.