Cineworld could breach debt terms in worst-case virus scenario

(Reuters) - Cineworld CINE.L could fail to meet its debt commitments in a worst-case coronavirus scenario, it warned on Thursday, though it plans to press ahead with its $1.65 billion takeover of Canadian rival Cineplex CGX.TO.

FILE PHOTO: Workers repair a sign at a Cineworld cinema in Bradford northern England, March 24, 2016. REUTERS/Phil Noble/File Photo

The London-listed company operates about 9,500 screens globally, with more than 7,000 in the United States, where it generates three quarters of its revenue. The Cineplex deal announced three months ago will make Cineworld the biggest cinema operator in North America.

But Cineworld, the biggest shareholder of which sold part of its stake on Monday to refinance debt, is also grappling with worries over the impact of the coronavirus pandemic and investor short-selling on concerns over the company’s debt position.

Shares in the company plunged nearly 49% on Thursday to their lowest in more than 10 years at 45.59 pence.

Cineworld said that in a worst-case scenario it might have to close all cinemas for up to three months.

Though it said this would be unlikely, it added that the potential indicates “the existence of a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern”.

Jefferies analysts previously estimated that the company was burning about $115 million a month, had $470 million in readily available cash and could deal with four months of all cinemas being closed.

Cineworld’s debt stands at $3.5 billion, excluding leases, with additional financing of about $2.2 billion for Cineplex as it begins to pay for the deal announced only a couple of years after its $3.6 billion acquisition of Regal Cinemas.

“We have a legal contract with Cineplex; we are committed to the deal,” Cineworld finance chief Nisan Cohen told Reuters. “It’s a very attractive deal, very strong synergies and there is no changing the plan”.

If Cineworld were to abandon the deal, it could face a fee of up to 28.3 million pounds ($36.1 million).

The company expects the deal to be completed in the first half of 2020, but JP Morgan analysts expect it to be delayed.

Cineworld reiterated that the coronavirus outbreak has so far had no material impact on its theatre admissions, but that could change with the delayed release of films such as the new James Bond movie.

Cohen emphasised that delayed releases would merely push back attendance by movie-goers until later in the year, with the company saying it is excited about forthcoming films such as “Black Widow”, “Wonder Woman 1984” and “Top Gun Maverick”.

(Graphic: Cineworld targeted by shortsellers - )

(Graphic: Cineworld market cap craters - )

Reporting by Patrick Graham and Tanishaa Nadkar in Bengaluru; Editing by David Goodman