It is easier to reprise your glory days in a movie than in business. Tom Cruise did so last year in Top Gun: Maverick, portraying a dashing airman. But global box office takings for 2022 are likely to be well below those of $42bn in 2019. UK-listed Cineworld, in US bankruptcy proceedings since September, does not expect its own ticket sales to revive fully until 2024.
Cineworld shareholders are hanging on to their equity by a thread. The UK-listed company has a market capitalisation of £50mn, compared with more than £4bn in 2019. The business hopes to sell its assets, though rumoured talks with rival AMC never took place, it says.
Its movie theatres are only useful to a buyer who wants to run a cinema chain. The prospects for that industry have been diminished by streaming businesses, which are still paying steeply for content.
Even at book value, Cineworld’s assets would barely cover outstanding borrowings. A sale of the whole business seems unlikely. A restructuring is a more realistic option. Creditors would then take the place of current shareholders.
Net of depreciation Cineworld had $1.5bn worth of property and equipment at the end of June last year. Its other main asset is the right to use the buildings it leases, worth about $2bn. An offer for the Plc, which no one expects, would mean taking on $5bn of borrowings and almost $4bn of lease obligations. On top of that, the company has $1.9bn of debtor‐in‐possession (DIP) financing to see it through its Chapter 11 proceedings.
Despite a cash burn rate down to $145m in the first half of 2022, the company now has plenty of liquidity. But even on Cineworld’s optimistic assumptions of a recovery, net debt would still be too high this year, at about seven times ebitda.
Leverage needs to fall to half that amount to become sustainable. This would mean shedding $2.5bn of borrowings, on top of repaying the DIP financing. New investors willing to cover that bill will be as scarce in the real world as septuagenarian combat pilots.
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