Cineworld UK has outlined the next steps of its restructuring plan in a letter to landlords and creditors seen by Screen, including how it will renegotiate rents with more than 50 landlords – and proceed with administration if the plans are not approved.
Last Friday, the exhibition giant unveiled its UK restructuring plan, which will see the Cineworld close six sites and “reduce rent to market levels at certain UK locations”.
In the letter dated July 26, the company outlines how it has divided its leases with cinema landlords into different classes. Thirty-eight are defined as ‘Class A’. These are performing well and are not included in the restructuring plans.
Thirty-three are ‘Class B’ and are defined as uneconomic on current terms. At these sites, Cineworld is looking for a reduction of rent to ERV Rent (external valuers’ opinion of the open market rent) to make the cinemas viable on a long-term basis.
Ten leases are described as ‘Class C1’, for which Cineworld is looking for “Turnover Rent” – £0.50 for every admission in the year-long “Turnover Period” (beginning June 24).
There are six ‘Class C2’ leases for which Cineworld is seeking to pay zero rent “in order to place the sites on a viable footing in the short term and long term”.
Six ‘Class D1’ leases are considered uneconomic, even at zero rent; these are the sites Cineworld is exiting (Glasgow Parkhead, Bedford, Hinckley, Loughborough, Yate and Swindon Circus).
The Cineworld Group has 1,082 cinema screens in 101 UK sites under the Cineworld brand.
If the court approves the plan, it is expected to become effective in late September.
The restructuring is taking place under 26A of the Companies Act – an arrangement with a company’s creditors when it is in financial difficulties that enables it to stay in business. For the plan to go ahead, each class of creditor must agree by 75% or more to the terms of the restructuring proposal.
Cineworld has been working with turnaround and restructuring specialists AlixPartners. Barclays Bank is involved as the ‘administrative agent’.
‘Carrot and stick’
The exhibitor appears to be pursuing a carrot-and-stick strategy with the landlords. Cineworld is promising potential extra funding for refurbishing and improving venues if the restructuring goes through.
However, if the restructuring fails, the letter is stark about what happens next to Cineworld’s UK business. It says: “Without the restructuring plans, the [UK businesses] will, commencing on or around September 29, have insufficient cash to pay their debts as they fall due…” and will then “need to enter into formal insolvency proceedings.”
It outlines two potential next steps: a ‘pre-packaged administration scenario’, under which the US group would stop providing financial support to Cineworld UK and it would be unable to continue trading. Administration would follow and key assets would be sold off.
A second option is a ‘trading administration scenario’, where the US group provides limited funding during administration, allowing for the potential sale of cinema leases via “an accelerated sales process over a four-to-eight-week period”.
A convening hearing is expected to be held on August 27 where the court will consider the restructuring plan.
The letter spells out that if the plan is not in place by late September, the company will suffer a “shortfall in liquidity on or around September 29 when the September 2024 quarterly rent payment falls due”.
“Organised landlord backlash”
An industry source told Screen that several of the exhibitor’s landlords are likely to oppose attempts to renegotiate rates. Others are understood already to have struck “consensual agreements” with Cineworld over revised terms. Prominent landlords known to have Cineworld sites include Land Sec Leisure, Legal &General, Canada Life and British Land.
“They [the landlords] are not people sitting there, twiddling their thumbs, wondering what to do. They are very solvent, very organised and they will unite,” the source told Screen. “The [Cineworld] terms are so ludicrous that there will almost certainly be an organised landlord backlash.”
However, if the restructuring is successful, the exhibition giant could both secure the long-term future of its UK business and give itself a significant advantage over its rivals Vue and Odeon which won’t have been able to recalibrate their rents in the same way.
Cineworld’s UK business was profitable in 2019 but has posted losses since then, depending on cash injections from the US group (the Regal Cinema brand) to make its most recent rent payments.
Screen has contacted Cineworld for comment.
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