💥Cineworld & the Business of Bankruptcy💥
💥Cineworld & the Business of Bankruptcy💥
Cineworld (Non)Update, Invacare Corporation, H2 Brands
We are watching with awe as Avatar: The Way of Water continues to shatter box office expectations and ascend to the upper echelon of highest (global) grossing movies of all time. The movie is, at the time of this writing, squarely in the top four with number three, another James Cameron film, Titanic, within striking distance ⬇️:
Strangely, we haven’t heard a single person talk about it. Literally…not…one — a fact that we find incredibly strange given its success. And “success,” in this case, includes an Oscar nomination for Best Picture, one of the more cynical ploys by Hollywood strategists to make an awards show relevant and watchable in recent memory (notably, Top Gun: Maverick was also nominated, LOL). Anyway, we were way wrong when we snarked, on multiple occasions, that the movie would flop. Far from it — despite having virtually no cultural significance heading into the release.
So about that. We’re not the only one’s questioning what the hell is going on with this movie. Here is a Vox article aptly titled:
The author, Alex Abad-Santos, writes:
…the current conversation surrounding The Way of Water feels a lot like a hangover from the one surrounding 2009’s Avatar: that James Cameron had made the biggest movie in history that no one actually remembers. It’s uncanny when something that makes an absurd amount of money isn’t also something that everyone talks about all the time.
He continues:
Part of the puzzle is the aforementioned lack of vocal and visible fandom. Since there isn’t a rabid, fan-sparked clamor for the movie, it seems like it shouldn’t be doing as well as it has. What skews perception even further is that The Way of Water and its predecessors are the rare American movies that are actually more popular overseas.
“While Avatar does very well in the United States, it does incredibly well abroad,” Connor told me. “Top Gun Maverick is basically a 50-50 movie: 50 percent of its box office is domestic and 50 is international. Way of Water is closer to 70 to 75 percent of its money abroad.”
And:
According to Box Office Mojo, around $620 million of Way of Water’s $2.1 billion box office comes from domestic viewings — a respectable figure, according to Connor. When you look at the all-time list of US domestic gross, though, movies like Star Wars: The Force Awakens, Avengers: Endgame, and Spider-Man: No Way Home all have totals of at least $800 million. Box office earnings and ticket sales aren’t a one-to-one conversion (due in large part to IMAX and 3D screenings, which cost more and are added into box office totals), but those non-Avatar franchises being much more popular stateside can lead to Americans underestimating The Way of Water’s success.
The other side of that story is that The Way of Water’s worldwide total is close to $1.5 billion, which dwarfs its cinematic competition. Breaking that down even further, China accounts for $229 million, and not too far behind are France at $130 million and Germany at $119 million.
That all said, you know who is talking about it? The Cineworld Group plc debtors, of course! The movie theater chain (Regal Cinemas, etc.) continues to crawl towards some sort of resolution of their chapter 11 bankruptcy cases and, yet, there’s been very little movement of note lately. Indeed, we last wrote about the case back on January 11 in “💥Cineworld of Hurt. Part II.💥,” which discussed the debtors’ last status conference before Judge Isgur and highlighted (a) some interesting (read: atrocious) industry-wide financials and (b) head-scratching spin from debtors’ counsel, Kirkland & Ellis LLP. Since then, the only developments have been … well … strange. On January 23, 2023, for instance, the debtors’ filed a “statement with respect to the marketing process” which (i) indicated that the debtors hadn’t yet received a response from the Ad Hoc Term Loan Group to their 12/1/22 restructuring proposal and (ii) included a bunch of whining about how certain potential interested deal parties — including two competitors — have been “back door” communicating with the Ad Hoc Term Loan Group (👀 Adam Aron). The statement was clearly meant to lay down the law about whose process this was and alert Judge Isgur that there were some shenanigans afoot in the background:
While the Final DIP Order provides the Ad Hoc Group with certain consultation rights with respect to the Marketing Process, it is the Debtors—and the Debtors alone—who conduct and manage the Marketing Process, all in accordance with their fiduciary duties. There will be no back door. The Ad Hoc Group and the Committee are fully aligned with this mandate. Certain Outreach Parties, including two competitors, have attempted to engage directly with the Ad Hoc Group or certain lenders in an attempt to undermine the Debtors’ process. This will not happen or be tolerated.
We love when bankruptcy lawyers play tough guy, lol. The docket has essentially run dry ever since. Which begs the question: is any deal near? What has come of negotiations between the debtors and the Ad Hoc Term Loan Group?
One other question: how relevant is the geographical breakdown noted ⬆️? After all, it’s great that Cameron has shepherded yet another global blockbuster but the total figure is a bit misleading as far as Cineworld is concerned: Cineworld doesn’t have locations in China. Nor France. Nor Germany. That, per Vox, is $229mm + $130mm + 119mm off the table right there, for a total of $478mm. Diving deeper, The-Numbers.com pegs the total, as of February 4, 2023, at $244.2mm for China, $136.9mm for France, $124.5mm for Germany and — not mentioned by Vox — $106.9mm in South Korea, $59.9mm in Australia, $58.4mm in India, $53.2mm in Mexico, $49.5mm in Spain, and $45.7mm in Italy. In other words, a meaningful percentage of the movie’s gangbusters earnings were made in geographies where Cineworld does not have a presence.
As it relates to the US, The Way of the Water is the 10th highest grossing movie of all time (as of February 4, 2023). Touting the overall global box office number, therefore, is misleading at best and disingenuous spin at worst. The details were brushed over at the last status conference despite an entire slide dedicated solely to The Way of Water:
Query whether this is complicating efforts to conjure up a go-forward plan structure for a predominantly US-based theater chain…? 🤔
We may soon find out the answers to many of these questions.
On February 3, 2023 a “Notice of Status Conference” for February 8, 2023 at 10am CT, appeared on the docket. We look forward to hearing (i) some updates about the state of the movie business, (ii) updates about the state of Cineworld’s business, specifically, and (iii) some first-class ego boosting…
*****
The other interesting thing we noticed throughout that last Cineworld Group status conference was just how darn talented (some of) the Kirkland & Ellis folks are at cultivating their relationships with management teams. Note these three separate statements from lead Cineworld hypeman counsel, Josh Sussberg:
…notwithstanding a 25 percent box office underperformance, everything that the management team can control has, in fact, been controlled in a way that exceeds expectations and the original forecast.
While the debtor's projected admissions … have fallen short of expectations, the total spent per person has beat projections by 15 percent. And I think on its face this proves that the management team was once again right, knows this business better than anyone.
…in a business dominated by blockbusters, having the most seats and the best experience is key and, again, a testament to the fortitude of our management team.
And, then, in closing:
I will tell you from our perspective, the company's advisors, we are not going to let a day go by where we don't fight for this management team and this company. These folks have been, as I said, in this business for more than a hundred years. And there's nothing more important to us than moving this along and getting it reorganized.
That is some all-in grade-A brown-nosing right there. We’d pay over $1,845k/hour (of creditor money) to get pumped up left and right too.
Which gets us to this pre-Christmas profile in Bloomberg Law. It’s … well … 👀 in the manner it depicts the business of bankruptcy.