A bankruptcy court judge today gave the green light to a reorganization plan for parent company Regal Cineworld, a key step needed for the giant movie theater chain to emerge from bankruptcy next month.
In a court-ordered hearing, Judge Marvin Isgur of the U.S. District Court for the Southern District of Texas said the deal the parties had been working on since Cineworld filed for Chapter 11 last fall was negotiated “at arms length.” ‘, “in good faith”. and aims to preserve future jobs and capital throughout the remote business. With some details and wording still being worked out, “I will confirm the plan,” Isgur said.
Cineworld ran out of money and could not borrow more as prolonged Covid-related theater closures hit the exhibition particularly hard. Recovery was slow and the company’s already high debt made recovery impossible. The restructuring will support its balance sheet and provide significant additional liquidity. Specifically, it will pay off $4.53 billion in debt. It seeks a rights offering to raise $800 million in gross proceeds and secure $1.46 billion in new debt financing.
Shareholders of Cineworld, which trades on the London Stock Exchange, will be completely wiped out after the stock is delisted – to the dismay of a UK caller who attended the hearing and was able to ask a few questions. His line often faltered, but the message was clear: “This is a once-in-100-years event and it’s about people’s life savings,” he said. He singled out an agreement by Cineworld’s lenders, who are now its new owners, to pay CEO Mooky Greidinger, his brother Israel and two other senior executives a combined $35 million to stay at the helm during the company’s exit from bankruptcy, ensuring a smooth transition. . It is not clear who will ultimately lead the company.
“Do you think it is morally right for this to happen and the shareholders get nothing? Why don’t you share that with the shareholders?” the caller asked.
A lawyer for the debtors objected to the word ‘moral’ as irrelevant.
He is “a secular person,” said the judge, “What he means is ‘fair and just.’
The lawyer said the payment would bring “direct value to the estate” as it films its next phase.
Okay, but “Can you get your heads together and get the shareholders something, some scrap?”
The lawyer said the money would never go to the shareholders under any circumstances.
The exchange prompted an explanation from Judge Isgur about who offsets a bankruptcy. Shareholders always come last after lenders and secured and unsecured creditors.
“The law requires that those who have capital invested in a business be paid before the shareholders. Shareholders bear the first risk of business failure. This is true under each state’s law [and] United States federal law…and I think in most Western economies, but I’m not absolutely sure.”
In this case, “there isn’t enough out there” to pay everyone. “Debt is paid before equity and that’s what happens, and that’s what would happen today.”
“It’s not that I don’t care [about shareholders]. It’s not like I don’t lie awake at night worrying about them. I want shareholders to hear this directly from me,” the judge said.
“This is not an attempt to steal business from shareholders. The business was stolen by a disease, a virus, that spread around the world.”
The Greidingers were Cineworld’s largest shareholders.