Cineworld’s Debt Crunch Leaves Spurned Merger Partner in Lurch


Cineplex Inc. has a clear path to fixing its debt problem. The trouble is, it’s stuck waiting to receive cash from a rival with a stressed balance sheet.

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(Bloomberg) — Cineplex Inc. has a clear path to fixing its debt problem. The trouble is, it’s stuck waiting to receive cash from a rival with a stressed balance sheet. 

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Canada’s largest movie-theater chain was awarded C$1.24 billion ($970 million) in damages from Cineworld Group Plc by an Ontario court last year, after Cineworld decided to walk away from a takeover offer. Cineworld hasn’t paid and an appeals court has scheduled hearings for October. 

In the meantime, Cineplex Chief Executive Officer Ellis Jacob is left to weigh the odds that his Toronto-based company will see the cash. The court award is nearly half of Cineplex’s enterprise value of C$2.5 billion, according to data compiled by Bloomberg. 

“We’ve got a good position, but we still have to go through the process,” Jacob said in an interview. “We’d have to look and see where they are, whether they can even come up with the funding, which is another challenge.”

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Cineworld’s debt problems appear daunting. It’s rated CCC by S&P Global Ratings, the eighth level below investment grade, and the shares have lost about two-thirds of their value since the beginning of last year amid concerns about a possible default. 

Cineplex’s first priority if it does get a payment from Cineworld is to “get our leverage back to a level we are comfortable with,” Jacob said. The company got an extension on its financial covenants again this week, but they’ll be reinstated in the fourth quarter. Cineplex’s profit before interest and taxes was only 1.1 times its interest expense in the second quarter, according to Bloomberg data. 

Cineplex has hired Moelis & Co. and law firm Goodmans LLP to give advice on how to “maximize and monetize the value of the judgment,” the company said in a statement. Selling the claim is one option, Jacob said.

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‘Moviegoers Are Back’ 

After experiencing some of the strictest pandemic measures in the Americas last year, Canadians are returning to movie theaters. Cineplex had 11.1 million theater customers in the second quarter, a 10-fold increase from the prior year, as Covid restrictions were removed and successful titles like “Top Gun: Maverick,” “Doctor Strange in the Multiverse of Madness” and “Jurassic World: Dominion” hit the screens.

That helped Cineplex to its first profitable quarter since the pandemic began, earning C$1.3 million, or 2 Canadian cents a share. 

“Management has done a tremendous job navigating through the pandemic, and the company is well-positioned to benefit yet again from consumers’ appetite for theatrical releases,” Bank of Nova Scotia analyst Maher Yaghi said in a note to investors. “Box-office revenues in North America clearly show that moviegoers are back in full force.” 

Yaghi put a C$16 target price on the stock, 43% higher than where the shares were trading early Friday afternoon. 

Cineplex also owns other entertainment businesses including The Rec Room, a Canadian chain of restaurants similar to Dave & Buster’s, and Player One Amusement Group, a distributor of video games and pinball machines across North America. 

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