. The next step will be for a ‘Sanction Hearing’ in London on Thursday (September 26) when it will be up to a judge to rule whether creditors will be materially better off under the plan than they would be if the cinema chain fell into insolvency. The challenge is that several of Cineworld’s major landlords – including, according to Sky News, British Land, Landsec and Legal & General – voted against the restructuring.
The plan was nonetheless passed by creditors because the “intercompany lender” and the “loan company lender” voted overwhelmingly in favour. “The landlords are going to have this rammed down regardless. It is not a question of them accepting it or not.
The largest class of creditors are the lenders, who are also the equity holders. [The restructuring plan] was designed by the company so they could crush the votes of the landlords,” one property expert told of the restructuring plan, which is being pursued under 26A of the Companies Act. “Because [the lenders] have one foot in the shareholder bucket and one foot in the lender bucket, that gives them control over this process.
” Goldentree, the Wall Street hedge fund that owns the Travelodge chain, has been widely reported in the UK press as one of the funds leading the contentious restructure. “It is one big poker game and that is what these ‘vulture’ hedge funds love doing,” the source added. The landlords also included several local councils including Barnsley, Solihull and South Oxfordshire.
In late July, the chain announced plans under the restructuring to close six sites and reduce rents to market level at several others. The plan was also intended to give Cineworld the “opportunity to obtain further funding to meet its working capital needs, reduce its liabilities, and to benefit from a significant capital expenditure programme in the UK”. The goal was for the restructuring plan to become effective by the end of this month.
The company warned that if the restructuring wasn’t successfully implemented, Cineworld was expected to experience a “shortfall in liquidity” when the quarterly rent payment fell due. It is expected that some Cineworld landlords may now terminate their leases and look to work with other operators. If they do so, they may face punitive “strip out work” from Cineworld of all tenant fixtures and fittings, furniture and equipment in order to return the building to the Landlord Creditor as a “stripped out warm shell”.
However, some observers point out that many Cineworld UK sites – unlike those of some rival circuits in the UK – don’t currently feature luxury recliner seats and are need of refurbishment anyway. “Stripping them is not a big issue,” one source claimed. Landlords who feel they will be better off if Cineworld falls into formal insolvency proceedings will have the opportunity to make their feelings known at this week’s Sanction Hearing.
“I think a big element of this is some of these hedge funds not knowing the market or the parties involved. They’re underestimating how difficult this is going to be,” another well-placed source commented. Cineworld has been approached for comment.
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