Cineworld preparing to file for bankruptcy after pandemic rout

Cineworld, the world’s second-largest cinema chain, is preparing to file for bankruptcy after failing to see a quick enough recovery in movie-going since the end of the pandemic.

The London-listed business, which has run up debt of more than $4.8bn (£4bn) after losses soared while cinemas were shut during the global coronavirus crisis, has hired lawyers from Kirkland & Ellis and consultants from restructuring experts AlixPartners to advise on the process.

The company, which operates 751 sites in 10 countries including the Cineworld and Picturehouse chains in the UK, is expected to file a chapter 11 petition in the US and is considering insolvency proceedings in the UK, according to the Wall Street Journal.

Cineworld’s already battered share price crumpled from 20p to 2p after the report. Before the pandemic it was trading at £1.97.

The move follows Cineworld’s market value more than halving on Wednesday after the company said it had started talks with stakeholders about a financial rescue package, blaming a lack of blockbuster films for lower-than-expected admissions.

The group said it was in “active discussions with various stakeholders” and evaluating strategic options to obtain additional liquidity and potentially restructure its balance sheet to reduce debt. “Any deleveraging transaction will likely result in very significant dilution of existing equity interests in Cineworld,” it warned.

Investors reacting to the news sent the company’s market value plunging to less than £50m on Friday, having been valued at as much as £4.4bn before the pandemic all but destroyed the cinema industry.

On Wednesday, the chain said its business operations were expected to remain unaffected by its move to seek financial stability and that it “expects to continue to meet its ongoing business counterparty obligations”.

Unions representing Cineworld’s 45,000 global workforce, including more than 5,000 in the UK, expressed concern about their fate.

“This is very worrying news, not least for the UK’s Cineworld and Picturehouse workforce, who have already been through a tumultuous time during the pandemic,” said Philippa Childs, the head of the UK union Bectu.

“We will do everything we can to support our members during this challenging time and will be looking to Cineworld to mitigate the impact of any bankruptcy arrangements on its employees.”

Cineworld, which faces an almost $1bn payout for pulling out of a deal to buy its Canadian rival Cineplex, reported a $493m year on year increase in net debt to $4.8bn at the end of 2021.

The group made a $708m loss last year. However, revenues more than doubled from $852m to $1.8bn, thanks to the latest James Bond and Spider-Man films. In 2020, the company reported a record $3bn loss.

“The firm will blame the lack of summer blockbusters as a reason behind its sharp downfall but in reality its aggressive acquisition plan has taken on too much debt and this was always a huge risk as interest rates rise,” said Walid Koudmani, chief market analyst at the financial brokerage XTB.

“Moreover, the move to stay-at-home entertainment and streaming providers has created a pivotal shift in the way consumers enjoy films, and Cineworld simply has not adapted fast enough. It’s all quite sad as the UK’s high street will now likely lose a popular and familiar brand name.”

The company admitted about 95 million cinemagoers in 2021, up 75% on the 54 million in 2020 but well below the 275 million who attended before the Covid crisis.

The state of Cineworld is in stark contrast to the performance of AMC Entertainment, the world’s largest cinema group and owner of the Odeon chain in the UK, which said the new Top Gun and Dr Strange films had fuelled a doubling of ticket sales in the US.

The company, which has a $12.8bn market value, said July had the highest monthly attendance in US cinemas since before the pandemic.