The Cineworld Group plc (LON: CINE) share price rallied 11.8% as the Chapter 11 bankruptcy case proceeds. Investors reacted positively to news that the theatre operator has shut down 23 unprofitable locations.
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In the bankruptcy proceedings, the company’s legal advisor said the firm would continue identifying unprofitable cinemas and closing them as it seeks to turn around its fortunes and restructure its massive debt burden of almost $9 billion.
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Investors cheered the progress in the bankruptcy proceedings, given that Cineworld recently announced it would start a sale process and was looking for proposals for the sale of the entire group and its assets.
Cineworld denied having held talks with rival AMC Entertainment about selling some of its US and European assets. However, previous reports had indicated that Cineworld received an offer for its US business from Canadian rival Cineplex.
However, the cinema operator has denied any previous talks about selling its assets but has since opened the door for new offers from interested parties for the entire business, given the company’s management is keen to keep it as it is.
Cineworld is currently negotiating with most of its landlords to lower its rents, given the challenging operating environment created by the COVID-19 pandemic and the advent of streaming services that have affected the number of people going to watch movies in theatres.
The company has warned shareholders that it would be significantly diluted once it signs a deal with its creditors, who could convert their debt into equity and have a higher priority over other existing shareholders.
Cineworld remains a cautionary tale among most companies that use debt to grow their businesses through acquisitions. The company’s problems were compounded by the closure of cinemas following the emergence of the COVID-19 pandemic.
As a result, the firm had to take on more debt to maintain its theatres and keep paying employees despite closing its cinemas. The combination of its earlier debts incurred while acquiring Regal Cinemas and its COVID debts left the company in a compromised financial position.
*This is not investment advice.
Cineworld share price.
The Cineworld share price rallied 11.76% to trade at 3.80p, rising from Wednesday’s closing price of 3.40p.
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