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I ususally only accept Tweets from anonymous users on Twitter as Gospel when they end with "lol edukate urself" or "youre literally a nazi".
Sounds like someone has read and rehashed some of the press speculation.
It is however a great way to select oneself for the Filter button, so there is that.
@Quiggers52
The judge was a "she" not a "he" BTW.
In short, from someone who watched a chunk of it, the court got it right in that Cineworld pulled out because of the impact of Covid and didn't have the MAE clause allowing it. Cineworld's management were clearly 'economical with the actualite' and came across as a bunch of chancers (which IMHO is what they are).
However, I think that there is a very likely chance that the quantum will be reduced by an order or two of magnitude as the judge's interpretation (aided by poor evidence from Cineworld) is, as has been noted by most legal commentators, 'novel'.
By awarding the full benefits of synergies to the acquired entity and disregarding the fact that the acquirer paid a premium to not only gain control but also access those synergies is perverse.
Yup. After the previous announcement that they were selling it was inevitable that there would be a share overhang. Given the time lag they have probably sold their entire holding by now.
Sand Grove are a 'Special Situations" Hedge Fund who specialise in highly indebted / distressed companies. If they already have exposure to Cineworld through other financial instruments then one would expect that they would be playing all sorts of financial games in the background to improve/ maximise their position.
I would expect several other similar funds to join the party at some point, although most are sitting on their hands at the moment until the Chapter 11/ Interim Results/ Court Case outcomes are clearer, but as those progress they'll be a very wild ride to come.
We are currently in the calm before the storm, how it turns out is anyone's guess, but I'd be surprised if this ends in wimper rather than a bang.
@ Hexam
Yes, it's a real mess these days.
They say that the first casualty of war is innocence.
For a distressed stock the first casualty is rationality, rapidly followed by grammar & spelling!
@shazabo
Agreed - I just wish that the board wasn't littered bit people trying to engage them. There is no new information just the same tired points.
@Tegop
My working assumption is that they will trigger Chapter 11 to give them breathing space until the result of the court case is known and the new 'blockbusters' are released nearer Xmas. If both of those go well, they may try and trade out of it or negotiate a debt for equity swap from a position of relative strength.
If they both go badly, then it will be a pre-pack administration with equity holders left with nothing and the creditors as the new equity owners.
Nothing else makes sense at this point.
He'll be granted sweat equity via warrants or the like - hit milestones and those shares vest.
Also we know that the Cineplex hearing isn't until the end of October so the FT have got their facts wrong about it being settled in September. That's a pretty material error.
Cineworld has been run for the benefit of Mooky, his family and for creditors for a long while and I had always feared that a pre-pack where equity gets wiped out and Mooky parachutes into a newco richly rewarded for new "management services" was the likely option.
That said, I think that's the worst case scenario and it is more likely that they will attempt to sell some assets such as those suggested by the FT (the Eastern European cinemas) and muddle through until after the court case. Win that case and the film slate coming through would mean that it is possible that Mooky &Co could then retain their 20% shareholding in the business.
I wouldn't rule out hedge funds joing the party, hoovering up the equity on the cheap and then fighting against a deal which shafts shareholders and enriches the management team that caused the problem.
I still think that this has a long way to run, despite what is announced over the next few weeks. Be interesting what is said at the results presentation on 22nd Sept.
@HNS_77
Good to have another thoughtful post amongst the nonsense.
Yes, Cineplex have shot themselves in the foot and a negotiated settlement would salve many issues, be it as you say or by offering some kind of staged payments based on Cineworld's share price.
However, once again we have the issue of Mooky's ego to deal with - clearly he thinks that the judgement was completely wrong and wants to be vindicated at appeal, so I don't think that there is a number which would suit both sides.
Spoiler - Cineworld did pull out of the deal because of Covid and they weren't entitled to do so because they removed the clause in the agreement that would have allowed that because Mooky was desperate to be Number 1. The award was two orders of magnitude too big and it should have just been for the legal and associated costs incurred, around CAN$10 million.
Hubris, stupidity and egos on the part of the parties and incompetence on the part of the judge have caused this.
It's pretty simple when you break it down.
I think it's at this point us old timers would expect someone to say "I wouldn't want to be out of this over the weekend"
@patience
I expect that there are covenants in the debt agreements that require them to pay their bills as they become due in the ordinary course of business, otherwise that would trigger a default.
Hi KickThePuss
Thinking about it I think that a Chapter 11 will be filed sooner rather than later and that is in fact desirable all round. That's because it would put the whole creditor situation on ice for a few months which would take us to the end of the year when we ought to know the out come of the Cineplex claim and be into the blockbusters and their associated revenue that we have been promised.
If the Cineplex ruling is upheld, it's game over for the equity and the secured creditors would prefer an orderly pre-pack with new clean equity and avoid having to pay the Cineplex damages claim at all.
If it is overturned then the BoD would be in a much stronger position to negotiate terms for a smaller debt for equity swap at a much better rate for the shareholders than at the moment with the Cineplex ruling clouding the whole issue, plus revenue from the November film slate would be coming in thus improving the liquidity position.
So it's best all round to put Cineworld into a standstill until November because to do a debt for equity now would mean having to give away far more of the equity to account for the potential Cineplex liability and lenders would have to swap far more of their debt than they would like to get a deal done. The only question is how much liquidity Cineworld has to get from now to then assuming it only pays for staff etc and not the other creditors bills who can wait a few months.
When it happens, embrace Chapter 11 as it is the best route for a reasonable return on equity, rather than seeing it as the precursor of a winding up. That's my view based on the limited information set we have!
Obviously the elephant in the room is the Cineplex judgement which would make all this academic, but if you believe (as I do) that Barbara got it catastrophically wrong and that will be at least partially corrected by three judges in October, then the above paragraph is entirely feasible, and coming off the back of a successful appeal and with November looming, I would expect the BoD to negotiate towards the upper end of the above metrics.
So in conclusion, I think that there is value in the equity and I expect that the BoD will play for time, including using Chapter 11, to get to November where they will hope for a successful appeal and the start of the new stronger movie slate. Just my (contrarian) view to the prevailing narrative, but I think it is plausible.
It’s a very high risk situation, but the endless catastrophising looks overdone to me at these prices. (2/2)
No doubt this post will rapidly fill up with the usual sheep bleating about baaankruptcy, but to me, the share price fall looks well overdone. Let's try and run some numbers and look at this logically and ignore the rhetoric for a while.
Obviously the current collapse is driven by the WSJ article that has made "bankruptcy" the headline, when it actually related to Chapter 11 proceedings. That has scared the horses and set in train the current positive feedback loop (or 'death spiral' if you are excitable) where the share price drops and everyone runs for the door at once to try and salvage something because something is better than nothing. So far so rational. And with an excess of sellers over buyers, exacerbated by Jangho Group ditching their very substantial position, it keeps dropping far past what looks sensible based on what we know (or think we know given the public pronouncements).
Well, the information we have or suspect is that after December it is likely that Cineworld will be cash positive on a trading basis and probably breakeven profitable for 2023 given the movie slate.
We also know that the BoD are considering a "deleveraging transaction [which] would, however, result in very significant dilution of existing equity interests in Cineworld."
So if the business does have a future, but only after a significantly dilutive deleveraging transaction, what does that mean for shareholders. Well, we have to know what is "[a] very significant dilution"? A quick Google comes up with Interserve where the exact same phrase was used for their (in the end) failed restructuring and debt for equity swap.
https://en.wikipedia.org/wiki/Interserve (scroll down to the "Failed 2019 financial restructuring" section)
That initially proposed giving the shareholders 2.5% of the rescued equity which increased to 7.5% after a Hedge Fund got involved (something I suspect that we might see here, witness Goldman Sachs playing silly beggars with economic and voting interests for a start).
For various reasons that transaction failed, but Cineworld is probably in a better position given that it is likely to turn profitable again quite soon, unlike Interserve.
If we assume that what is being envisaged is leaving shareholders with anything between 2.5% and 10% of the enlarged equity, what would that be worth and what does that mean in pence per share?
Well it will probably be a long played out process and could go anywhere, but if one assumes that a Cineworld away from Covid, shorn of its Covid debts and firing on all cylinders would be valued similarly to its 2019 levels which was a market cap of c£3 billion, then current holders would (at 10%) own equity worth £300m or c 23p per share. At 5% that would drop to c12p per share or at 2.5% c6p per share. Obviously this changes if you put different valuations on the ‘reborn’ equity, but I don’t think it’s that far off. Even if you halve it you are still ahead of today’s share price. (1/2)
I now have 122 idiots filtered, which is also the price of Cine shares in pence at their mid-Covid peak.
I consider this a lucky omen!
@ Hexam
You are right and I thought that was what I was saying, but reading back what I wrote I see it's mostly garbled nonsense.
I guess it comes down to the leases being classified as finance leases and thus from a 'pure' perspective should be put through the financing lines. From a beancounter view this would allow comparison between operators who own their premises and those who don't.
However from most users viewpoint, although those cinema leases are long enough to be classified as finance leases they are a day to day operting cost and so need to be taken into account when trying to get to EBITDA which most people use as a proxy for operating or core performance/ cashflow.
I guess we'll have to wait until Sept 22nd (IIRC) to get the next update, it'll be both a wild and tedious ride between now & then!