National CineMedia Files For Chapter 11

The nation’s biggest movie theater advertising network National CineMedia said tonight it’s filed a voluntary Chapter 11 petition in U.S. District Court in the Southern District of Texas – where one of its biggest shareholders and customers, Regal parent Cineworld, has just presented a restructuring plan to emerge from bankruptcy itself.  

Cineworld filed in September and hopes for approval in late May. National Cinemedia’s proceedings should go faster as it filed with a comprehensive restructuring agreement already in hand and supported by secured lenders that it says provides “a clear roadmap…to quickly emerge without disrupting its operations or customer relationships.”

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The move is not a shock. The company recently missed and then extended several times the grace period on an interest payment originally due in mid-February, putting it technical default already with big ratings agencies and prompting speculation about a possible Chapter 11 or out-of-court restructuring. It’s auditor had signaled concern about its ability to continue as a going concern last fall and its share price has been floored at penny-stock level. The business has taken time to recover from theaters being shuttered during Covid and a slow box office recovery. Cineworld, as part of its bankruptcy, has been trying to cancel or reset a long-term contract between National Cinemedia and Regal.

The agreement calls for all of the company’s debt to be converted into equity. It will assume critical contracts upon emergence of Chapter 11, and current management would be maintained to ensure continuity. 

“Today’s transactions will position us to deliver the strong results our advertisers and cinema partners have come to expect from us today and well into the future,” said CEO Tom Lesinski. “We are entering this process with the overwhelming support of our secured lenders and key stakeholders, which we expect will enable us to swiftly and responsibly emerge as a stronger company.”

Converting all of the company’s funded debt into equity would completely de-lever its balance sheet. Holding company NCM will receive an ownership interest in the restructured company of approximately 14%. Unless an official creditors committee is formed, all holders of general unsecured claims will be paid in full in the ordinary course under the RSA. The company will continue to operate with existing cash balances providing liquidity.

Following the restructuring, it said, it “will be well-positioned as moviegoers enjoy the resumption of a regular schedule for major motion picture releases following pandemic disruption.”

In fact, the move comes as the box office hit a high point with this past weekend’s release of The Super Mario Bros. Movie, the largest opening weekend debut of the year.

The company also filed a so-called first-day order for approval, including requests to pay employee wages and benefits. It will continue servicing its existing customer programs, partnerships, and cinema operator relationships in the ordinary course of business.

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