Cineworld Group (LSE: CINE) shares have slumped in value as fears over its debt levels have grown. And on Wednesday, the company announced plans to delay making payments to former Regal Entertainment shareholders.
Fresh payment request
To recap, Cineworld announced in September plans to pay unhappy ex-Regal shareholders an extra $170m for its takeover of the US cinema chain in 2017.
In February, Cineworld struck a deal to move the date for final payments from the end of March to 30 June. And today, the business announced it was in discussions to delay payments again.
Cineworld said it has requested a new payment date “with the aim of maximising its available liquidity”. It added that it is “hopeful that a satisfactory agreement” can be made.
The business said that some of its lenders have provided waivers, or pledges to waive “any events of default” to help it strike a deal with former Regal stakeholders. It also said it expects to obtain waivers from holders of its convertible bonds that are due in 2025.
Balance sheet blues
The news underlines the precarious financial situation Cineworld is in. The business came close to collapse during the pandemic. And it remains suffocated with debt following the Regal acquisition and the pressures created by cinema closures during Covid-19.
Cineworld’s net debt stood at a colossal $8.9bn as of December 2021. This was up around $600m year-on-year.
The amount of debt on its books will balloon still further if it fails to overturn a ruling to pay damages to Canadian chain Cineplex. Last year, the Ontario Superior Court of Justice ordered Cineworld to pay C$1.23bn ($960m) followings its abandoned 2020 takeover.
A heroic sales recovery
Cineworld’s fresh plan to delay payments to former Regal investors might give it some wriggle room. But the news isn’t a gamechanger that will encourage me to invest.
Even if Cineworld’s delay request is accepted — a scenario that is by no means guaranteed — it means the problem will just be kicked down the road for a little longer, at least.
I still believe the outlook for UK cinema operators like Cineworld is very bright. Movie lovers have flocked back to the cinema in massive numbers following the end of Covid-19 lockdowns.
Popular titles such as Spider-Man: No Way Home and Dune have helped drive ticket sales in recent times. And there’s a packed slate of Hollywood sequels and reboots that stretches into the middle of the decade that could supercharge profits at the likes of Cineworld.
I’d look past Cineworld shares
I can’t help but worry about Cineworld given those massive debt levels however. The business warned as recently as March that “material uncertainty around [our] ability to continue as a going concern remains.”
I’d be happy to pass on Cineworld’s shares and invest in other UK shares today.