Member Info for Wellington99

I suspect it's a combination of the amount of management time being used up in the Chapter 11 process and the need to be absolutely certain that the accounts can be prepared under the "Going Concen" principle.
A recent change in Auditing Standards requires the auditors to make a positive statement as to whether the entity is a 'Going Concern' whereas previously they only had to report by exception.
Given that Cineworld have just filed an insolvency procedure, the auditors will want to make sure that in the event that it does all go bust that they have the evidence to support their position. I can imagine that this is being considered at the highest levels of PwC at the moment because when a company does go down, it's usually the auditors who are the only ones left standing who it is worthwhile suing.
As others have said, I wouldn't read too much into it, and I wouldn't be surprised if they were delayed again (if that's permitted under the rules).

@WolfofWarks
OK, so you are a financial voyeur.
Whatever floats your boat.
Although to always take a bearish view is somewhat odd.
I'm not suggesting that you should drink the Kool-Aid, but your posts are not redolent of a seeker of information or that of a disinterested observer.
Not that it matters, this BB is a vipers' nest these days.
I only look in to see if there is data that I have missed.
I've given up trying to articulate, from an evidence based approach, what I think might be the real position and the way forward as it is one hand clapping.

@Hexam
FFS, will you stop responding to "Ian"?
He's clearly either unhinged or a troll.
Either way, it's a waste of your time, which is fine.
But I value your posts, in which case, if I have to read your rebuttals to his nonsense, it's a waste of my time. Which is unforgivable.
@Wolf of Warks
You clearly have better understanding of corporate finance than most on here (it’s a low bar) and you’ve come in for some stick recently. although I do not assign you a purpose as others do, it does prick my antennae when someone who posts so frequently and assiduously as you do, as to what their intent is.
Obviously, the world is filled with people who bone up on a horse’s form, studiously examine the last few races, read every word in the Racing Post and then watch every second of the races but never place a bet.
Maybe you are just one of those fellows, dwelling in their parents’ basement, voyeuristically watching the slow car crash that is Cineworld, and getting a frisson from telling the sad old bar-stewards who invested in it that they are wrong.
Or maybe. You aren’t what you say you are.

@Lordy2020
It's "intents & purposes".

@Quiggers52
From the bits of the trial I saw and mainly the summing up at the end, the judge selected that number because it was the only one on offer. IIRC Cineworld didn't really address the point as they were focussing on winning the point that they terminated correctly. There was lots of bits of evidence submitted but not much was examined in detail. Also, the extremely novel approach of awarding 100% of the synergies to the acquired entity rather than the acquirer who had paid a premium to access those synergies wasn't thought as a remotely likely possibility (my inference).
So I don't think that the DCF methodology was examined in any great detail, as the principle is so odd.
If the award was designed to put Cineplex in the position it would have been had the deal closed as expected, then factors such as Cineplex being loaded up with debt (as was the case in the Regal acquisition) and the associated interest payments, and use of management charges for Cineplex using Cineworld's North American hub (which is how many of the synergies were to be realised) ought to have been factored in.
That's why I think that the damages ought to be substantially reduced on appeal.
What I don't know is how much of that can be considered by the Appeal Court.
However for me, the most likely route is that the judge erred in assuming that all the synergies should go to Cineplex Inc, which has been described by a number of legal commentators as "novel", which is something that I think the Appeal Court will be concerned about since it would stand as precedent in future cases and all the implications that flow from that.

I think that's a strong buy recommendation.

The guy is clueless.
I'd give his "analysis" (especially on dilution) a stiff ignoring.

@WoW
Can't see Ian's post as he is in the Green Bin for spouting arrant nonsense.
I agree, the new loan is at a 20% clip which is far better than the old rates, and is why the creditors wanted to load up Cineworld with $1.9bn of it but the judge wouldn't allow it, so this is the creditors trying to earn fees and take as much of the pie as possible before the horse trading begins in earnest.

@Hexam
Yes, at the moment and for most of the last couple of years, Cineworld has been uninvestable for institutions.
There are plenty of vulture capital/ activist funds/ hedgies who if shown a proper plan would consider investing. And that is one scenario that I think becomes more and more likely if the creditors get too greedy.
The main reason for doing the calcualtions was to try and work out the scale of the problem.

Oops, I pressed post too early.
What I mean is that pre-Covid and before the Cineplex deal was announced the shares were trading at £2 to £2.50.
There are 1.3bn shares (IIRC). If they could raise (say) £1 per share of new equity (from current or new holders) then that would be $1.5bn which would pay down the emergency funding taken on during Covid. New equity holders would then have an entry price of £1.03 for a business that used to be worth £2 to £2.5 a share. Obviously valuations will have dropped from that level but it's not beyond the bounds of possibility that a recapitalised Cineworld going into 2023 would be worth (say) £1.5 per share. That's a 50% increase for new money. Even (say) a valuation of £1.30 would be an 'overnight' gain of 30%.
(That's *if* the award to Cineplex can be reduced)
A new equity raise was resisted by Mooky before (I assume) becuase of dilution, but facing a total wipeout things might look different now.
(In Israel's document he says that they looked at an equity raise but the Cineplex award made that impossible).

@Quiggers52 Cracking find, thank you.
However I run the numbers (assuming a return to something like business as usual and the Cineplex litigation being substantially reduced) I come up with a figure of around $1 to $1.5bn to put Cineworld back on an even keel where it was pre-Covid.
The debt holders see an opportunity to scoop the pool and effectively end up owning virtually the whole company, which would be a great outcome for them.
Apart from Mooky's appalling dealmaking, the major driver of this problem is the fact that he didn't want to be diluted by a Rights Issue as he couldn't fulfil his portion as his own stake is already leveraged to the hilt.
If the Cineplex award can be mostly removed as an overhang, they'll be plenty more vulture capital firms coming to the party to get a slice of the pie and they won't want the debt holders to snaffle it all.
This will be a very choppy ride over the next quarter or so.

@WoW
Any idea what that means for shareholder rights in the UK?
I know that the US likes to flex its extra-territorial muscles, but hard to see how that works in practice.

Oh, BTW as this thread doesn't seem to have descended into the usual lunatic ramblings of this BB, one other thought I've had that is a small piece of good news is contained contained in this piece:
https://www.costar.com/article/691750159/us-bankruptcy-judge-grants-cineworld-access-to-less-money-than-movie-operator-wanted-as-it-explores-future

Looking at the cashflow through to Q2 (IIRC) next year it seems clear that the lenders wanted Cineworld to take $1.94bn in emergency funding but the judge would only allow $785m.

At first pass this looks like a bad thing, but on reflection it seems that the judge was stopping lenders loading up Cineworld with new debt with a 20% pa rate to swap for their current debt at single digit interests rates.

That's a good thing and suggests that the judge won't let the creditors completely run the table.

@Hexam etc
I think that we are all a little off piste when it comes to Chapter 11 in a US court.
My working assumption, based on similar deals and the fact that the ultimate parent company's equity is registered in the UK (England & Wales specifically), is that the usual shareholder protections are in place regarding dilution etc.
I suspect that a US judge could order that the debtor entities listed in the action and based in the US would have to sell assets or enter into other arrangements (like getting rid of leases etc) but that they wouldn't have jurisdiction over a UK based parent.
Obviously if the whole CH11 thing falls apart then the judge could liquidate etc the US entities, but (once again) my working assumption is that the whole is more valuable than the sum of the parts and that the creditors would want a slice of Cineworld PLC as it is publicaly tradeable. And for that I am pretty sure that the shareholders would need to approve. That's been the case on other D4E cases that I've looked at.
Happy to be corrected if others have greater professional insight.

Thanks for the kind words - sometimes it's easier to get things straight in one's own head when one has to write it out longhand and hear other peoples' point of view.
@WolfofWarks - Yes, my pricing is based on a return to business as usual, although I allowed some slippage, in that it used 2019 numbers which was a year with a poor slate. And I agree that the industry does face headwinds which will be included as a discount in valuations which will err to the downside, much as @Penta points out. I guess it comes down to everyone's individual viewpoint which will differ and that's what makes a market (as they say!).

I think that what is becoming clearer in my mind is that the current SP drop may well be overdone. I assume a virtual total wipeout if Cineplex goes badly, mainly because that's the base position here and the SP is currently buttons, but there may still be a single digit pence per share value afterwards as @Hexam alludes to.

The one point that isn't factored in here is that at the moment is that the debt holders have the whip hand. The current management have run as far as they can and Cineworld has £4m in cash and is running on fumes. They have no options left and are price takers in any negotiation. They will have to take whatever is offered because there is no Plan B. I think that the Cineplex case being reduced would open up some alternatives and at that point hopefully we will get hedge funds piling in to the dirt cheap equity and fighting back for equity to get a larger slice of the pie. They only have to get the price up to (say) 20p to get a six or seven fold return - they don't have to get it back to £1! They will be well funded and advised and ought to level the playing field with the debt holders as there will be an equality of arms at that point. Also any D4E will need the shareholders to approve it and so one would expect them to fight their corner very hard, even up to the brinkmanship level of burning the whole deal and losing their stake. We have seen this in an number of other transactions - sometimes it worked and sometimes it didn't.
Anyhow, that's the bit of the knitting which I think is currently missing in the SP and I would say at the moment (SP 3p) that the risks are balanced to the upside.

@Penta
1) It was higher in 2018 so I'd tried to pick a number from just before covid but I agree it could be within quite a large range of values
2) As I just posted, I think that the D4E relates to around USD1.5bn not all of it.

@poorinvester
I think that we are all vigorously agreeing!
I agree with WoW and Hexam in that the value of the business is based on future cashflows discounted back to (say) 1 Jan 2023 which would give an Enterprise Value similar to 2019 (as I assume that the business going forward and valuation metrics remain unaltered - a big assumption but not outside the bounds of possibility)
If we do that, we then have to work out who gets what slice of the pie for providing enough working capital going forward and for writing off the excess debt accumulated during covid (assuming that the debt pre-covid was manageable but if it was too high then some of that might need to be included as well).
However I can't see any scenario where *all* or even a majority of the debt is converted into equity as that would be a very inefficienct capital structure.
I think it's also worth remembering that debtholders maximise their returns if the busines is kept as a going concern for current stakeholders as a distressed sale to a third party or even liquidation now would be at a knockdown price requiring them to take haircuts and in order for that to happen, they do need equity holders to play ball as they could play dog in the manger if they thought that they would get nothing.

I think it's probably better if people concentrated on Enterprise Value when considering how the pie might be cut in any D4E transaction.
Using round numbers at the end of 2019 (which is pre-covid but post the markets starting to short cineworld because they didn't like the Cineplex deal) the Market Cap was £2.50 x 1.3 bn shares x 1.33 (GBP to USD) = USD4.2bn and Cineworld claimed a Net Debt figure of USD3.5bn and so the Enterprise Value was circa USD7.7bn.

In that year they also generated free cash flow (pre growth capex) of USD821m or post capex of USD449m - so a pretty decent business.

2019 wasn't a particularly good year, but it is probably a good base case for 2023 and beyond.

So, ceteris paribus, the Enterprise Value is likely to go back to around USD7bn when things pick up, except there is now (IIRC) around USD1.5bn of more debt and a contingent liability of circa USD1bn from the Cineplex award.

So the battle at the moment is between how much of the future enterprise value represented by equity can the debt holders snaffle by providing emergency liquidity now and pulling legal strings to swap the excess debt for future equity.

At the moment the share price suggests the answer is pretty much all of it, which I think is caused by the Cineplex overhang.

If that award is dramatically reduced, things will change rapidly and current equity holders will be in a much stronger position to resist a total wipeout. I would also expect to see activist hedge funds join party by hoovering up the equity on the cheap and then playing debtholders at their own game because the prize is the lions share of what will return to be a successful proven cash generative business.
I think everything now hinges around the Cineplex appeal - fail to overturn it and it's game over for equity holders, substantially reduce it to under (say) USD50m and then a return to the 20p to 50p range is entirely possible as that would equate to USD300m to USD750m in total.

Put it another way, if the excess debt built up over covid which needs to be swapped into equity to get back to the 2019 capital stucture and the equity value pre-covid was USD4.2bn then to convert that debt into equity for 90% control would still leave circa USD420m for current shareholders which is just under 30p in terms of share price( 95% is 15p and 99% is 3p.)
It's a punt but I think that there are a number of plausible ways out of this *if* the Cineplex claim can be substantially reduced.

@Wolf
Yes, that's what the cashflow shows.

For the umpteenth time, Cineworld will not be a meme share like AMC.
Our capital markets are not set up to allow the structure that made AMC fly.
If you don't know why, you really shouldn't be investing in shares.