Cineworld, the world's second-largest theater chain operator, is moving forward with its landlord negotiations, filing its latest iteration of lease rejections even as it receives approval from a U.S. bankruptcy judge to raise nearly $2.3 billion in hopes of exiting bankruptcy.
The United Kingdom-based parent of Regal Cinemas recently received approval on the financing proposal detailed in its Chapter 11 plan from U.S. Bankruptcy Judge Marvin Isgur after the theater chain reached a settlement with some of its lenders, quelling disputes over how much stock would be received in exchange for providing exit financing.
In its plan, Cineworld told stakeholders it made a deal to cut $4.53 billion of debt, wiping out existing shareholders, and transferring the company to lenders. The plan also gives Cineworld nearly $2.3 billion in exit financing, including a new $1.46 billion loan and the proceeds from the sale of $800 million of equity shares, according to the court-approved plan.
Cineworld, with 9,139 screens at 747 locations in 10 countries, has been trying to quantify its going-forward real estate portfolio since filing for Chapter 11 protection in September after a lingering pandemic slump in ticket sales hit its bottom line. Cineworld's debt obligations have topped out at $6 billion in bankruptcy.
Cineworld has said its real estate leases were a key component in its need to reorganize the company, with deferred rent payments hitting the theater chain's bottom line and weighing it down in debt. Officials estimated average monthly rent obligations per theater increased nearly 30% through July 2022 compared with the full-year 2019.
Cineworld added another wave of leases to the rejection pile in its seventh-such motion, bringing its total count of U.S. leases in the rejection pile to 139. Even as the company has filed to reject even more leases, in hopes of optimizing its real estate portfolio, Cineworld's attorneys say negotiations are ongoing with landlords.
"The debtors have determined in their business judgment that certain leases for U.S. theater sites are unnecessary and burdensome to their estates and do not have a place in the debtors’ go-forward business," attorneys told the bankruptcy judge. "Rejection of these leases will reduce high fixed operational costs and better position the debtors to conduct competitive operations to the benefit of their estates. As such, the debtors seek to reject these additional nine leases."
If rejected, the leases could save Cineworld about $670,000 annually, adding to a much larger combined savings. To date, including actions taken by Judge Isgur, only 52 of the 139 leases have been rejected in the bankruptcy court.
The cinema operator has yet to unveil the details of its going-forward real estate portfolio. Here's the latest list of leases being proposed for rejection effective May 31:
California: 550 Deep Valley Drive in Rolling Hills Estates; 789 E Tahquitz Canyon Way in Palm Springs; 2101 Vine St. in El Dorado Hills; 3355 S. Mooney Blvd. in Visalia.
Connecticut: 123 Cross Road in Waterford.
Hawaii: 74-5469 Kamakaeha Ave. in Kailua-Kona.
Philadelphia: 1619 Grant Ave. in Philadelphia
Washington: 1200 156th Avenue NE in Bellevue; 940 NE Park Drive in Issaquah.
Judge Isgur both approved — and within two days vacated — a court order rejecting 22 theater leases in Cineworld's sixth wave of lease rejections, with the theater chain telling the bankruptcy judge the negotiations with those landlords are continuing. One theater lease was taken out of this pile — and ultimately was rejected — as a singular motion:
Oregon: 11626 S.W. Pacific Hwy. in Tigard (rejection effective March 31).
Judge Isgur also approved three additional lease rejections from the fifth wave of lease rejections, which include:
Colorado: 9355 Park Meadows Drive in Littleton (rejection effective April 27)
Maryland: 15200 Major Lansdale Blvd. in Bowie (rejection effective April 27)
New York: 176 Greece Ridge Center Drive in Rochester (rejection effective March 24).
Cineworld hopes to exit bankruptcy next month, with a hearing scheduled in mid-June. Prior to the theater chain exiting bankruptcy, Cineworld will have to commit to a going-forward real estate portfolio.