Cineworld Term Loan CINELN TLB
December 22, 2022 - 11:20am EST by
2022 2023
Price: 0.18 EPS 0 0
Shares Out. (in M): 3,953 P/E 0 0
Market Cap (in $M): 711 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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SUMMARY: Highly asymmetrical opportunity: limited downisde, 3x+ upside, known catalysts in the next 3-6 months.

  • Cineworld Term Loans are the fulcrum security in the Cineworld Chapter 11 bankruptcy 
  • At the current price of 18% of par the creation Enterprise Value for the company is approximately US$2.65 billion (approx. 65% below YE 2019 EV and an implied EV/2019 EBITDA of 2.6x)
    • Using 2019 as a 'known' pre-covid number (as also makes comparisons with publicly traded comparables easier).  Haircut this as you see fit but the valuation should still look very reasonable
  • The closest direct comparable (Cinemark) currently trades at EV which is approx. 40% down from YE2019 and and EV/2019 EBITDA multiple of 4.1x.  Applying Cinemark's valuation to Cineworld would imply a >300% return for the term loan
  • Chapter 11 self-help will allow Cineworld to create further incremental value: >US$600M from lease and contract rejections + synergies in the event of M&A 
    • (1) Lease Rejection => to date Cineworld has rejected 66 leases for savings of $59M p.a.  Further rejections/renegotiations are expected before emergence for a total of $100M+ p.a.  $100M+ p.a. of incremental EBITDA = EV increase of >$500M 
    • (2) National Cinemedia => overmarket advertising contract (due to a historical transaction) which Chapter 11 will allow the company to either renegotiate or reject and move to an alternative provider.  Annual EBITDA increment of $25M+ p.a. = EV increase of >$100M 
    • (3) Strategic Acquirers / Synergies => As part of an agreement with creditors Cineworld is required to proactively run a sale process and solicit bids in parallel with a reorganisation.  Cineplex, AMC and Vue have all been linked with a potential acquisition of some or all of Cineworld's assets.  Each of these companies have significant synergies.  For example the merger of Cineplex and Cineworld (announced in 2019 but not completed) had synergies of >$100M p.a. = EV increase of >$500M 
  • Catalysts: announcement of reorganisation plan and / or asset sales (Q1'23); Emergence from Chapter 11 (mid-2023)

More details on the key items above described below.  This is deliberately high-level but happy to elaborate or provide more info in Q&A.  


Cineworld filed for Chapter 11 bankruptcy protection in September 2022 after hitting a liquidity wall.  In short, the company took on debt to complete an acquisition, was hit by Covid, took on additional debt to fund cash burn (instead of raising equity) and eventuall ran out of money.  For those interested a good summary of the business and the events leading up to the bankruptcy can be found in the first day declaration of the Deputy CEO (here). 


Post filing for Chapter 11 the company put in place a super-senior $1.935bn Debtor in possession financing.  Proceeds from this were used to repay priority secured loans and to fund working capital.  Pro forma for the DIP and priorty debt repayment the capital structure in the table below.  The EV attachment point for the secured loans is approx. $2.65bn (assuming par recover on the DIP).  

Instrument Face Value Price MTM Value Cumulative EV
Super Senior DIP $1,935 99 $1,915 $1,915
Secured Loans $3,953 18 $711 $2,646
Unsecured Convertible Bond $213      
Regal Dessenters Settlement Facility $57      


3/4 of Cineworld's business is in the USA (Regal Entertainment).  This is directly comparable with Cinemark and AMC.  The remainder of the business is UK and other parts of Europe.  Currently Cinemark is trading at 6x 2023E EBITDA and 4x 2019A (AMC is subject to meme stock distortion so I'd ignore it for valuation purposes).  The other North American comparables are Marcus and Cineplex (both approx. 6x 2023 EBITDA).  Kinepolis is the only listed European cinema company and trades at approx 9x 2023 EBITDA.  

Cineworld should generate $650-700M of 2023 EBITDA.  At c.6x EBITDA this implies an EV of $3.5-4.0bn or fair value of approx. 50-60 for the Term Loans (3x approx. upside to the midpoint).  As a cross check use 2019 (pre covid) valuations and earning power for each of these comparables as a reference point (to take out the forecasting error and use actuals instead) and you come out in the same place.  


Chapter 11 allows Cineworld to undertake a number of self-help measures, including (i) reject/renegotiate leases; and (ii) reject/renegotiate onerous contracts.  This particular process will also require the company to run a sale process.  The lease rejections and the National Cinemedia contract are easy wins for Cineworld that will fall straight to the bottom line and are already being actioned.  The M&A is optionality.  

  • (1) Lease rejection: there should be >$100M of EBITDA uplift from lease rejection (i.e. c.15%+ of current EBITDA).  To date the company has completed 4 tranches of lease rejections for $59M savings (with more to come).  Specifically: 
    • Sep'22 (filing date): 17 leases, $12M savings 
    • 30-Sep-22: 6 leases, $12M savings
    • 14-Nov-22: 20 leases, $19.5M savings 
    • 9-Dec-22: 23 leases, $15M savings  
  • (2) Onerous contracts: the largest onerous contract Cineworld has is its advertising agreement with National Cinemedia (NCMI).  The history of NCMI is that the three large US cinema companies (AMC, Cinemark and Regal (now owned by Cineworld)) banded together to create National Cinemedia as their outsourced cinema advertising company.  They deliberately sold their advertising space cheaply to this company under long-term agreements so it 'over-earned' which in-turn allowed them to IPO this company as a yield vehicle.  In short, it was a way of pulling forward returns and cash/capital out for the cinema companies (think 'drop downs' and MLPs in energy for an analogue).  Roll forward to today and National cinemedia has 2x the margins of it's direct competitor (Screenvision) because it pays under-market for the advertising space it receives from AMC/Cinemark/Regal.  Chapter 11 allows Cineworld to reject this contract and it has already filed a motion to do so.  As a result either Cineworld will move its business across to Screenvision or it will renegotiate its current deal with National Cinemedia to at-market terms.  The third alternative is that Cineworld could in-house this function (which is what Cineplex does and it's a 45% EBITDA margin business and also what Cineworld does in Europe).  However this plays out it will result in tens of millions of dollars of EBITDA improvement for Cineworld.  
  • (3) M&A Process: as part of an agreement/settlement with creditors Cineworld is required to run a sale process for parts or all of its business. At least three parties have been already been linked with interest: 


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


  • Plan of Reorganisation - likely filed in Q1'23 
  • Chapter 11 Emergence - likely mid-2023 
  • M&A - could come at any time but the company is required to actively shop itself in parallel with the preparation of the plan of reorganisation
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