The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
This is the point in the testimony that makes the Cineplex Appeal so pivotal:
"137. While no payment has been required or made by Cineworld to Cineplex based on
the pendency of the appeal, the Canadian Court’s judgment has already had a significant negative
impact on the Group. Among other things, current and prospective financing sources have cited
the judgment in refusing to provide the Group with additional liquidity or flexibility, and
Cineworld’s stock price has been impacted and depressed by the overhang caused by the judgment
and ongoing appeal."
This is well worth a read.
It's clear that most of the avenues that they tried to pursue were blocked off because lenders thought that if they advanced any new money to Cineworld it wouldn't help extend the life of the Group but would be swallowed up by the Cineplex award. I have posted this before but I think it's quite clear that Chapter 11 became inevitable with that award hanging over the group as the only way that new money could be provided was if it enjoyed the legal protection that Chapter 11 gives to new money.
I think thatthe way ahead is clear and fairly binary:
*If* in October the Cineplex judgement is reduced to a few millions (as I think it should) *and* the much promised blockbuster slate comes on stream in November *and* the outlook for 2023 looks promising *then* I think that they will try to exit Chapter 11 with a minimal debt for equity exchange or possibly just get a new equity raise and refinance the rest of it possibly with some equity kickers for the debt holders and then trade their way out of trouble.
It will be a long hard road but is doable if the insutry returns to normal and the Cineplex award is massively reduced.
If the above doesn't happen then its game over for the shareholders and a sale of the business and haircuts all round to the debtholders.
Personally I take some comfort from the clarity of this statement and think that although the shares could be wiped out, there is the possibility (albeit a slim one) of them turning this around.
I'll stick around to find out and may average down some more as there is the potential for this to really fly over the next 18 months.
@jeff
I've read Israel's submission and the RoW NewCo is just a way to prevent other loans having to be treated as other Chaper 11 incidents.
"The RoW Credit Facility
Transaction will obviate the need for expensive, complex, and unnecessary chapter 11 filings, or
other insolvency proceedings, that would have otherwise been necessitated due to the occurrence
of an event of default under the RoW Credit Facility upon a chapter 11 filing."
@HNS_77
Come back when it has quietened down. The number of half wits on here at the moment (I include the quick buck artists and the 'lol its dead bro' brain donors) make it a place hard to have a sensible conversation, but that will subside.
All the best.
@BeastlyD
Not really, now the share price is down so low Jangho's holding is only £5m in total plus the shorters would have bought some of them.
@Quiggers
IIRC none of the lawyers involved had taken silk, in fact I think that's a rarity in Canada.
Anyhow, they did argue that the correct level of damages should be limited to simply the abortive costs incurred circa CAN$30m IIRC, at no point did they concede that the synergies should accrue to Cineplex, so I don't think I am going out on a limb on that one.
As to whether it will be heard, I've always thought it would since the costs of the hearing are only a million or two and I think that Cineworld will want their day of vindication.
However, I note your point that Cineplex may wrap their hand in for a few million if that gets them up the creditor chain and a share of the spoils, although why other creditors would agree to it is a mystery to me if the company is going to be liquidated. They would only countenance chucking some chicken feed Cineplex's way if the current corporate vehicle was kept alive and they wanted it clean of contingent liabilities. In which case shareholders would need to approve and they would need an incentive to do so, which chimes with the significant dilution point in the RNS rather than total wipeout as per the BB. That's a hell of a deal to put together, which I suppose is why we've started to hear much more about Chapter 11. Anyway, thanks that's an interesting thought I hadn't explored.
I guess we'll know within a month with the inetrims on 22nd Sept and the hearing scheduled for early Oct!
@Quiggers
I would expect damages to be reduced by over 90%, possibly more, if the synergies going to Cineplex is overturned, ehich I think it will be.
Quite possible for a subsidiary to be placed in an insolvency procedure without impacting the holding company. All depends on where the debt is located and what it is secured on, which kind of goes to the point above. If when Regal was acquried all the debt was shunted into the US corporation that was purchased then the same would have happened to Cineplex when the transaction closed, hence it would not have been in a better position if the deal had gone ahead.
@internetpig
I agree, it really is tedious.
My own view is that in the short term it is possible/ likely that Cineworld will file a Chapter 11 in the US to give it some breathing space from its creditors if cash is as tight as some have been speculating. That will have a negative impact on the share price in the short term but it will allow them time to get to the court hearing in early October.
I can't see there being any very positive news in the near term because any deal to sort out he long term capital structure is impossible until the outcome of that case in known. If they don't manage to get it overturned or substantially reduced, then all bets are off. If they do then I expect a share price rally and then many more options are open to the Board, including potentially a Rights Issue as part of a debt for equity deal to recaptalise the company. 2023 looks good from a trading perspective but they have to get through the next few months to get there. Creditors know this and so will be pushing to maximise their returns and get as much of the equity as possible now Cineworld are on the back foot and have very few options. Chapter 11 is one way to bring all that to a standstill and then start negotiations again when the blockbusters arrive and (hopefully) the Cineplex judgement is massively reduced.
In the meantime, with thin volumes (in £ terms), lack of clarity of what is really going on, and day traders jumping in and out, this is likely to be all over the shop.
@ Bonkers0801
Well said and I heartily agree. The sheer tedium of wading through the nonsense is quite wearing, although the filter button does help somewhat.
One Tweet from a reporter repeating the same assertion as the WSJ and the share price crashes by nearly 50%.
This is the very definition of a false market.
@jeff
If they lose the appeal, it's game over for Cineworld PLC in its current guise.
No one in their right mind would stump up several hundred million dollars to provide the working capital to get back to cashflow positive trading AND CAN$ 1.2bn to settle the suit.
It's why it is trading for pennies.
Absent the lawsuit and with a decent slate of films in the wings, this is a business many financial investors would fall over themselves to fund and buy a disproportionate slice of the upside.
@Quiggers
Yes "a win" in my lexicon means reduced damages, in my other posts I've conceded that Cineworld were bang to rights.
As a Chartered Accountant I could play merry hell with the NPV and discount rate and point out contras etc, and that may be a point which is argued, but I think that the main one is that it is egregiously incorrect to suggest that the acquired entity would enjoy the synergies of the eventual business combination. It defies commercial logic for any acquirer to pay a premium to gain control without getting the benefit of those synergies.
@WolfofWarks
Spiderman and Batman have had many many TV series and still they are a major Box Office draw - many before many of us were born!
VHS didn't kill the cinema.
Multi-platform is here to stay and a rising tide raises all ships.
Hexam has go that pretty much spot on.
IF the Box Office returns to something approaching normal (highly likely in my view) AND they win the Court Case (likely in my view) we have a sustainable business with a sub-optimal capital structure and a short term liquidity issue.
If the above two conditions are met, raising new money will cause some dilution of shareholders but does not need to be catastrophic.
Obviously if either of the above conditions aren't met then we are looking at a likely wipe out of shareholders. Which is why the share price is in single digits.
@Penta
They used a local corporation as the acquiring entity, probably for regulatory reasons, however Cineworld is named in all the legal documents as as party as well, plus no lawyer work his salt would allow Cineplex to sign a deal with a special purpose company with no assets without some recourse to the parent.
I guess that the question is was that some form of guarantee from Top Co and if so, how is it enforceable, in which jurisdiction etc.
For Cineworld to just blow a raspberry and walk away would have all sorts of other difficulties, but if it was in some form of insolvency procedure, then you can bet that all the other creditors would be looking at the fine detail and trying to do just that.
Personally I think we should leave the Board of Directors alone rather than suggest a course of action to them. We have so little information to work on it's impossible to make any kind of sensible call and I think it's better to keep our powder dry.
@Quiggers52
Thanks, that's useful as I think that the last we heard was from Cineplex who were saying the 22nd Oct.
No idea how long takes for the judgement to come out, but I'd guess a month to six weeks.
And for those who think that there will be a deal between Cineplex and Cineworld between now and then, I'd put that as an outside chance.
Cineworld think that he whole think ought to be struck out, so agreeing hundreds of millions that they haven't got makes no sense.
Cineplex know that they are unlikely to see a dime but can't back down because their shareholders see this windfall as a lifeline.
It'll go to court.
@Bonkers
I don't think that the recent news will *directly* impact the appeal, however judges (and there are three this time) are human and it won't have escaped their notice that the entire industry is on its knees and this would effectively kill off the No. 2 in that industry - they'd want to be pretty certain that the judgement was safe and also they will have an eye on precedent, since this will be binding on future similar cases.
In my view, I think that it was clear that the original decision was correct but the quantum was wrong.
That was partly because Barbara didn't like the cut of Mooky's jib and knew it would go to appeal anyway and so picked a number that had been proffered by Cineplex and partly because Cineworld assumed that they would win and so failed to prepare a proper case for arguing why the amount ought to be peanuts.
The correct damages for Cineplex is the amount of money they spent with external advisers in preparing for the deal.
Remember that it was Cineplex who was the party to the agreement and not the shareholders and so it is their loss which concerns the court.
The reasons why the number awarded is ludicrous is because Cineplex as a legal entity would not have been a billion dollars better off after the acquistion. If Cineplex had been bought by Cineworld then that entity would have been loaded up with debt to its eyeballs and most of the income would have been used to pay interest, most of the staff would have been fired with the ops being run from Cineworld's hub in the US and then Cineplex would have been charged a massive management fee for those services. Cineplex would have been breaking even at best and all the value would have been extracted by Cineworld as the acquirer for its own benefit *THAT'S WHY IT PAID A PREMIUM*!
That's all as plain as the nose on your face. What I don't know is how much evidenceabout what was going to happen is admissable in an appeal if it wasn't included in the original trial.
All the commentary I have seen from M'Learned Friends has suggested that this decision was a bit iffy so I'm pretty confident that the way I have set it out above is correct, but who knows how the court will view it and which bits are they allowed to consider under the various protocols.
My view is quite clear:
- if Cineworld can get through to December & 'win' the case with their current liquidity (and or minor help from shareholders / bondholders) then they may well be able to trade out of their current position (over a number of years) or recapitalise on terms that are reasonably favourable to current shareholders.
- if bondholders manage to force a debt for equity swap now, the shareholders will be wiped out and the bondholders will get all the upside
That's why the Board is considering Chapter 11. It's a big step that they would rather avoid, but it does get them to December when (in the words of Noel Edmonds) they get to 'open the box'.
@poorinvester
Nice plan but you'll have a job to do that - didn't you get the memo?
The shares will be suspended by then.
I wouldn't want to be out of this over the weekend.