RE: The Same Could Happen Again26 Aug 2022 12:15
Posted my Mellonhead22:
FT:
Cineworld is expected to skirt bankruptcy for the second time in two years, say lenders, despite the UK cinema group facing an almost $1bn payout that exceeds its market value for pulling out of a deal to buy Canadian rival Cineplex. The world’s second largest cinema operator has appealed the court awarded damages, but investors in Cineworld’s debt expect the two companies to strike a deal for a significantly lower amount even if unsuccessful.
That is because if Cineworld were pushed into bankruptcy by the damages, Cineplex would be near the back of the queue of creditors to be paid, multiple lenders told the Financial Times.
The group’s debt pile stood at $4.6bn at the end of June 2021, according to its most recent filings.
The legal wrangle between the two companies comes as cinema operators worldwide battle to resuscitate revenues that were wiped out during the worst of the coronavirus pandemic.
“From a strategic point of view, Cineworld is in a pretty good position even though they are facing this huge judgment,” said one lender to the company.
The Cineplex claim stems from Cineworld’s annulment in June 2020 of a deal struck six months earlier to buy the Canadian group for $2.3bn. The two companies subsequently sued each other over breaches of contract and a Canadian court awarded Cineplex C$1.23bn ($950mn) in damages in December 2021 — more than the London-listed company’s current £530mn market value.
But due to the way that the deal was structured, Cineworld could leverage its already high debt load to push Cineplex into accepting a lower payout.
Cineworld set up a Canadian legal entity to conduct the acquisition. As the deal fell apart, the legal entity was left as “an empty box” with no assets, according to the lender, so Cineplex’s claim falls to the entity’s holding company, Cineworld Group PLC.
Partly due to lockdown closures pushing Cineworld to raise emergency financing, and in part due to its existing debt load, the company is already on the hook for billions of dollars in loans to asset managers including Eaton Vance and Credit Suisse Asset Management.
These loans are secured against the company’s assets, which typically take priority payment in bankruptcy. “In a bankruptcy [Cineplex’s] claim will get literally almost nothing,” said a distressed debt investor.
“As a first lien creditor ourselves, we are not going to let a junior claim get paid ahead of us,” said another loan holder. “There is the idea that Cineplex also gets the joke.”
Cineplex declined to comment on its position. Cineworld also declined to comment.
Last week, Cineplex filed a cross-appeal against Cineworld’s challenge to the court ruling. The Canadian group argued that if the original damages are struck out, the court should consider a list of other claims that range from C$714mn for liabilities that would have been covered by Cineworld had the deal completed to C$1.3bn for lost compensation to Ci
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