Cineworld, the world's second-largest movie theater chain, emerged from Chapter 11 bankruptcy in the United States with a smaller and what is expected to be a more efficient real estate portfolio that's still being negotiated with at least one landlord.
The United Kingdom-based company and parent of Regal exited proceedings in the Bankruptcy Court for the Southern District of Texas, Houston division, on Monday, 11 months after filing for protection from creditors because of a pandemic-fueled slump in ticket sales. The restructured Cineworld also named a new executive board with global expertise it expects to guide the company through the competitive international cinema marketplace.
In addition, Cineworld plans to make investments in new screen formats and enhancements to its flagship theaters after using the bankruptcy court to reduce its debt by about $4.53 billion in a debt-for-equity exchange with lenders. Only AMC Theatres has more screens than Cineworld.
“With a transformed balance sheet and a right-sized capital structure, Cineworld is ready and fully able to succeed in this dynamic and constantly changing movie theatre industry,” said Eric Foss, chairperson of the new company's board, in a statement. Officials said the company will pursue "future strategic initiatives and continue providing leading cinematic experiences for customers globally."
In the United States, the new Cineworld plans to operate a trimmer movie theater chain with more than 350 theaters spanning the United States from Hawaii to Alaska and from California to Florida. The new operating company is still negotiating on "various" theaters with at least one of its landlords, EPR Properties and its affiliates based in Kansas City, Missouri, according to the latest revised plan supplement filed to the court Monday.
Real Estate Leeway
Judge Marvin Isgur gave Cineworld quite a bit of leeway when it came to finalizing its going-forward real estate plan. Typically, companies exiting bankruptcy must finalize its going-forward real estate plan in bankruptcy, which is often used by corporations seeking to terminate contracts, such as unprofitable leases.
In its first restructuring plan submitted to the court, Cineworld said it would assume about 350 U.S. leases, according to court filings. That's down from 505 U.S. theaters Cineworld had at the time it filed for bankruptcy in September 2022. As of the fifth revision to the plan filed on Monday, Cineworld said it would assume leases at 354 locations in the United States with an undisclosed number of leases still being negotiated with the Kansas City landlord.
Those leases being assumed include some of those tied to high-profile theaters once landing in the rejection pile by the theater chain. One of those iconic theaters, the Regal E-Walk at 247 W. 42nd St. in New York City, is about a block from Times Square. The lease was listed for rejection last November before negotiations allowed it to become an assumed lease in the company's plan to exit bankruptcy.
The real estate negotiations were a key part of Cineworld's bankruptcy efforts. Not only was there deferred maintenance on theaters during the pandemic, but the movie theater chain also had to pay back deferred rent as lockdowns meant to mitigate the spread of COVID-19 led to a pandemic slump in ticket sales as consumers sought other options for entertainment.
The average monthly rent obligations per theater increased nearly 30% year to date as of July 2022 for Cineworld and its affiliates compared with the full year in 2019 because of deferred rent payments, according to court filings.
New Cineworld's exit from bankruptcy in the United States makes way for Cineworld to enter into administration as planned in the United Kingdom to restructure its business. The group operates 128 theaters in the United Kingdom and Ireland. Cineworld wasn't immediately available to comment further on its bankruptcy exit.
New Leadership
On Monday, Cineworld also named the rest of its new executive board, which includes its previously announced new CEO Eduardo Acuna, a longtime industry executive that led rival theater chain Cinépolis, as well as Foss, who previously served as chairman and CEO of Pepsi Bottling Group and Aramark before being appointed to chair the new Cineworld's board.
The company's five other board members announced Monday include:
- Ann Sarnoff, former chair and CEO of Warner Brothers as well as the former president of BBC Studios Americas and a longtime executive at Viacom;
- Patrick Bartels, a capital markets expert who is a managing member of Redan Advisors and previously served as managing principal at Monarch Alternative Capital and as a research analyst for Invesco;
- Steve Joyce, former CEO of Dine Brands Global, the franchiser of IHOP and Applebee’s, as well as a former executive at Marriott International and Choice Hotels International;
- Stefano Malfitano, a principal at Cyrus Capital Partners who serves as a non-executive director at ABS Global;
- Blythe J. McGarvie, the former CEO of LIF Group who serves on the boards of LKQ Corp., Sonoco, Apple Hospitality REIT, as well as the privately held Wawa Inc.
"Cineworld has a strong platform, and its brands — including Regal, Cinema City, Picturehouse, and Planet — are some of the most iconic in our industry," Foss said.