A U.S. bankruptcy judge has granted Cineworld Group, the parent company of Regal Cinemas, and its affiliates access to hundreds of millions of dollars — much less than Cineworld wanted — in financing to help keep the struggling movie theater chain running as it goes through Chapter 11 bankruptcy proceedings and mulls its future.

U.K.-based Cineworld Group, the world's second-largest movie theater operator, filed for Chapter 11 bankruptcy protection last week to restructure its finances in the face of a lingering pandemic slump in ticket sales. The company, with 747 locations and 9,139 screens in 10 countries, plans to negotiate with creditors on its debt of at least $5 billion and renegotiate some U.S. leases.

Cineworld expects to present its real estate optimization plan to the U.S. Bankruptcy Court for the Southern District of Texas in Houston by mid-October and is considering a sale if no plan comes to fruition, Cineworld's newly named chief restructuring officer, James Mesterharm, told the court.

"We may have to flip to a sale process, but we hope to come to a consensual plan," Mesterharm said.

Judge Marvin Isgur granted the company access to up to $785 million in debtor-in-possession financing from lenders that include Blackstone Alternative Credit Advisors, Cyrus Capital Partners and Credit Suisse Asset Management during Cineworld's first-day hearings last week. The amount approved is less than the $1.94 billion of debtor-in-possession financing initially proposed by Cineworld.

The judge reviewed the original proposal and sent stakeholders back to the drawing board to rework the debtor-in-possession financing package to delay the repayment of $1 billion of old debt until the end of October. By delaying the repayment deadline, it gives Cineworld a chance to evaluate other financing options and potentially find a better deal, the bankruptcy judge said.

Cineworld CEO Mooky Greidinger said the approval of the initial funds is a positive step forward for the company's restructuring and positions it for long-term growth.

Cineworld has more than 500 leases in the United States, mostly under the Regal brand. The company plans to further optimize its leased real estate through the bankruptcy court, an effort the company and its affiliates started at the onset of the pandemic, with discussions continuing with landlords to improve lease terms. Last week, Cineworld filed a motion to initially reject 20 leases in a dozen states across the U.S. in a move expected to save the company an estimated $12 million, according to court documents.

Global movie ticket sales may not return to pre-pandemic levels for at least another year, according to estimates from industry analysts. Cineworld has been paying landlords large sums of deferred rent since the onset of the pandemic in March 2020. According to court documents, Cineworld estimates its average monthly rent obligations per theater have increased nearly 30% for the first half of this year compared with the full year in 2019.

Cineworld, like other cinema operators, was hit hard financially by the pandemic after months of government mandates, capacity restrictions and Hollywood studios delaying blockbuster movie theater releases. In addition, they faced increased competition from streaming services. Other U.S. movie theater operators such as Studio Movie Grill and Alamo Drafthouse sought bankruptcy protection because of ramifications stemming from the pandemic and used the court to get out of leases.

"There's just not enough 'Top Guns' or 'Spidermans' out there," Joshua Sussberg, a partner at law firm Kirkland & Ellis who is representing Cineworld in Chapter 11 bankruptcy proceedings, told the bankruptcy court last week. "A weak film slate" through the third quarter of 2022 and the rise of streaming presents a continued challenging operational environment for movie theater operators like Cineworld, Sussberg said.

The judge-approved initial debtor-in-possession loan, coupled with available cash reserves and cash provided through operations, is expected to give Cineworld enough liquidity to remain operational and pay vendors, suppliers and employees throughout bankruptcy proceedings. Globally, Cineworld has nearly 30,000 employees.

Some of Cineworld's largest creditors include Twentieth Century Fox Film and Walt Disney Co. as well as landlords such as Teachers Insurance and Annuity Association of America, National Retail Properties Inc. and Brookfield Properties Retail Inc.

Robert LeHane, a partner at Kelley Drye & Warren LLP in New York who is representing landlords for more than 100 Cineworld locations in the case, told the bankruptcy judge his clients are looking for a happy ending to Cineworld's bankruptcy, with these landlords being long-term partners in the cinema operator's business and the theaters often helping to anchor their retail properties.

For the 20 initial leases Cineworld is proposing to reject through the court, the company expects to abandon its personal property at the locations, according to court documents. The leases are "unnecessary and burdensome to the debtors' estates" and will reduce high-fixed operating costs, court documents say. If the judge agrees, the leases could be rejected this month. The initial 20 leases that could be rejected include the following:

California: 8030 E. Santa Ana Canyon Road, Anaheim Hills; 3351 W. Shaw Ave. in Fresno; 4767 Commons Way in Calabasas; 2525 San Ramon Valley Blvd. in San Ramon; 3735 Alton Parkway in Irvine

Connecticut: 495 Union St. in Waterbury; 85 Voluntown Road in Pawcatuck

Florida: 6415 N. Andrews Ave. in Fort Lauderdale; 12884 City Center Blvd. in Jacksonville

Michigan: 5330 West Saginaw Highway in Lansing

Missouri: 754 Gravois Bluffs Blvd. in Fenton

Nevada: 8880 South Eastern Ave. in Las Vegas

North Carolina: 750 SW Greenville Blvd. in Greenville

Ohio: 18348 Bagley Road in Cleveland

Oregon: 15995 SW Tualatin Sherwood Road in Sherwood

Pennsylvania: 185 North West End Blvd. in Quakertown

Texas: 8275 Amarillo Blvd. W in Amarillo; 9828 Great Hills Trail in Austin; 700 West Oaks Mall in Houston

Washington state: 5910 South 180th St. in Tukwila

This is the first wave of lease rejections after Cineworld "undertook an extensive analysis of their U.S. lease portfolio" and the company plans to continue to identify unprofitable U.S. theater locations, Cineworld said in court filings. A&G Realty Partners is negotiating on behalf of Cineworld with landlords on potential lease modifications.

A final hearing on first-day orders for the court case involving Cineworld and 104-affiliated entities is scheduled for Oct. 6. Cineworld hopes to exit bankruptcy by the end of the first quarter.

Cineworld's monthly lease obligations in the United States total about $60 million, which mostly had not been paid for September, with some landlords potentially also not being paid in August, Mesterharm, who is also a managing director at AlixPartners, told the court.

With only about $4 million left in Cineworld's accounts to pay for its ongoing operations, Mesterharm told the bankruptcy judge the company was "running on fumes" and it was imperative for Cineworld to come away from the hearing with the funding to ensure the company's near-term business operations and to pay its large employee base.

"With only $4 million on hand, it is not enough to fund Chapter 11 or pay significant operating expenses that are due on a daily and a monthly basis," Mesterharm told the court. "There is a liquidity shortfall that needs to be funded and the debtor-in-possession financing provides funds to the debtors for operations and also provides funds to cover the cost of the restructuring process."

Meanwhile, the bankruptcy is further complicated by an outstanding legal judgment in a Canadian court tied to Cineworld's failed takeover of Toronto-based Cineplex. Kirkland & Ellis' Sussberg told the bankruptcy court Cineworld is in the process of appealing the Canadian court's decision. The appeal is scheduled to be heard by a judge in mid-October, Sussberg said.

The legal dispute stems from before the pandemic when Cineworld unveiled plans in December 2019 to buy Cineplex, Canada's largest movie operator, in a deal for 2.18 billion Canadian dollars. Cineworld pulled out of the deal about six months later. The Ontario Superior Court of Justice ordered Cineworld to pay Cineplex CA$1.24 billion in damages in December 2021 because of lost synergies anticipated by the merger of the two operators.

If an appeals court doesn't rule in favor of London-based Cineworld, it could further complicate the company's bankruptcy process and put a hefty lien on the cinema chain's business, filings show. Cineplex said it is actively watching the bankruptcy case and has hired legal counsel to carefully review Cineworld's bankruptcy filings.