Cineworld Group PLC: May File Chapter 11

8/22/2022: All over the business news is that Cineworld Group PLC – the parent of Regal Cinemas – is considering filing for Chapter 11 protection. (Given how these things go “may file” really means “will file”). Times are tough in the movie exhibition business despite the post-pandemic re-opening, and the company is highly leveraged ($5bn in debt !). At the moment, though, there’s no talk of liquidation and some sort of restructuring is the most likely outcome.

“Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees.”Yahoo Finance: Quoting A Cineworld Press Release – August 22, 2022

From our parochial BDC sector perspective, the impact should be minimal. According to Advantage Data’s records, total exposure to Cineworld at cost is just $4.6mn held by two related players: Barings BDC (BBDC) and non-traded Barings Capital Investment Corp. Most of the exposure is in first lien debt – some in “super senior” status and unlikely to be much affected in terms of valuation in any restructuring. Admittedly, some of the debt comes with a very high cash and PIK yield, but given the small amounts involved this will not make a material difference if interest income is interrupted by a bankruptcy. A “realized loss” is likely on the small amounts of equity BBDC and its sister BDC hold in Cineworld, but the aggregate owned is less than $200K.

We are rating Cineworld CCR 4 on our 5 point scale and will continue to track this “developing story”. Overall, though, the BDC sector has very little exposure to the movie exhibition business – never a very large sector – so Cineworld’s troubles do not seem to augur more troubles elsewhere.