Back on February 19, 2020 when we first wrote about VIP Cinema Holdings, the movie theater seat manufacturer was in bankruptcy but planning to exit with a plan that included the conversion of debt to equity and new capital. Since then, though, we’ve had the Covid-19 situation, which has been a disaster for so many businesses, including the company’s prospective movie house clients.
Now, thanks to a legal challenge from a disgruntled unsecured creditor (Regal Cinemas) and a full fledged article in Law360, we hear that there is some doubt that the company will be able to proceed and get bankruptcy court approval to exit Chapter 11. Admittedly, this is one sided information as the company has not responded to claims made as yet.
However, one has to wonder – even without Regal’s complaints – if the company can survive in any form the extreme market conditions that Covid-19 has wrought and which show no signs of abating. For the three BDCs involved, this is making a bad situation worse. At year end 2019 – with the debt owed already on non accrual but before the Chapter 11 bankruptcy – VIP’s 2023 Term Loan had been written down by approx (55%). The expectation was that the BDC lenders would become owners in a fully de-leveraged entity. Now a complete loss on $23.6mn invested is a possibility. The BDCs involved are (in descending order of importance) publicly traded Main Street (MAIN); non-traded sister BDC HMS Income and public Garrison Capital (GARS).
We will check back when the BDC Credit Reporter determines if the company successfully exited Chapter 11 or not. Even then – and even without any debt outstanding – VIP may not yet survive. We are in a whole new environment and what was possible only a month ago in terms of company rescue will be very different going forward.