Cineworld reaches deal with lenders to slash debt by $4.53 billion

By Sarah Lizee

Olympia, Wash., April 3 – Cineworld Group plc announced that it has entered into a restructuring support agreement and a backstop commitment agreement with lenders holding about 83% of the group’s term loans due 2025 and 2026 and revolving credit facility due 2023.

The lenders have committed to provide a first-lien exit financing facility and backstop an equity rights offering in connection with the proposed restructuring, according to a London Stock Exchange filing.

The restructuring will be implemented primarily through a plan of reorganization in the Chapter 11 cases of the group.

If implemented, the proposed restructuring is expected to reduce the group’s funded debt by about $4.53 billion, principally through lenders under the legacy facilities receiving equity in the reorganized group in exchange for the release of their claims under the legacy facilities.

The group will raise $800 million in total gross proceeds through a fully backstopped equity offering to the legacy lenders and a direct equity offering to certain legacy lenders.

The restructuring will also provide $1.46 billion, net of original issue discount, of new debt financing to the group upon emergence from the Chapter 11 cases.

The proceeds of the rights offering and the exit facility will be used to, among other things, repay in full the roughly $1.94 billion debtor-in-possession financing facility entered into by the group when it started the Chapter 11 cases, fund the costs associated with emergence from the cases and fund the go-forward business operations.

Through a settlement, holders of general unsecured claims will receive their allocable share of (a) $10 million in cash and (b) interests in a litigation trust representing a right to recovery to (i) the first $5 million of cash recovered by the litigation trust from interchange litigation claims and (ii) 50% of any cash recovered in excess of $5 million in connection with such claims.

The proposed restructuring does not provide any recovery for holders of Cineworld’s existing equity interests.

The restructuring is subject to a number of conditions, including approval of the Chapter 11 plan by the required thresholds of the group’s creditors – being, in broad terms, at least one half of the legacy lenders and those holding two thirds of the claims outstanding under the legacy facilities.

The RSA parties have committed to vote in favor of the plan and support the proposed restructuring.

Rights offering

Through the backstopped rights offering, the legacy lenders are expected to be offered, pro rata to their holdings under the legacy facilities, the right to purchase shares in the reorganized group in a total purchase amount of $400 million.

The participating lenders will purchase shares in the reorganized group in a total purchase amount of $400 million through the direct allocation offering and be paid a backstop fee equal to 20% of the issued share capital in the reorganized group after giving effect to the proposed restructuring, including the rights offering.

The price payable to subscribe for shares under the rights offering will be set at a 25% discount to an implied equity value of the group after giving effect to the proposed restructuring of $1.48 billion.

Exit facility

The group will be required to run a third-party marketing process to raise a facility of equivalent size on alternative terms, with the proposed $1.46 billion exit facility being provided by the lenders if it is not possible to obtain an alternative facility.

The exit facility commitment parties will receive a backstop fee equal to 7% of the issued share capital in the reorganized group after giving effect to the proposed restructuring, including the rights offering.

Marketing process

As announced on Jan. 3, in parallel with developing a plan, Cineworld has also been running a marketing process for its assets.

In February, the company announced that it had received non-binding proposals for some or all of the group’s assets from a number of potential transaction counterparties.

Having discussed with its key stakeholders, Cineworld has determined that, absent an all-cash bid significantly in excess of the value established under the proposed restructuring, the marketing process as it relates to the group’s U.S., U.K. and Ireland businesses will be terminated.

Cineworld and its key stakeholders continue to consider the proposals that were received in respect of its “rest of the world” business. A process is underway with the bidders to assess whether an acceptable sale transaction can be completed.

Going forward

Cineworld had expected to emerge from the Chapter 11 cases during the first half of 2023, but the sale process may delay emergence beyond that time.

During the restructuring process, Cineworld continues to operate its global business and cinemas as usual without interruption.

Cineworld is a London-based cinema operator. The company filed bankruptcy on Sept. 7, 2022 under Chapter 11 case number 22-90168.

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