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Cinemex Holdings USA, Inc. – Major U.S. Theater Chain Owned by Mexico’s Grupo Cinemex Files Chapter 11 as a Recent Acquisition and a Recently Aggressive Growth Strategy Are Derailed by COVID-19


April 26, 2020 – Cinemex Holdings USA, Inc. and one affiliated Debtor (dba "CMX Cinema," "CMX” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Florida, lead case number 20-14696. The Debtors, the operator of approximately 40 cinemas and a wholly-owned subsidiary of Mexico's Grupo Cinemex, S.A. ("Cinemex"), are represented by Jeffrey Bast of Bast Amron LLP. Further board-authorized engagements include litigation heavyweight Quinn Emanuel Urquhart & Sullivan, LLP ("Quinn Emanuel") as general bankruptcy counsel.

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. The Debtors' list of top 30 unsecured claims notes five unsecured lenders, each holding a $9.0mn unsecured loan. They are: (i) BBVA Bancomer S.A., (ii) HSBC Mexico S.A., (iii) Scotiabank Inverlat, S.A., (iv) SAB Capital, S.A. and (v) Banco Santander (Mexico). Top trade creditors include (i) Entertainment Supply & Technologies, LLC ($4.5mn trade claim), (ii) VCC, LCC ($3.4mn trade claim) and (iii)Twin Shores Management, LLC ($2.6mn lease claim).

As of Sunday April 26th, the Debtors had yet to file documents with the Court beyond their Petitions and their list of top unsecured creditors; we will update this developing story as further details emerge. 

The key elements of the Debtors' bankruptcies are, however, already clear. The Debtors, an aggressive new entrant in the U.S. movie theater space, have been slammed by the coronavirus; and slammed just after committing to a major acquisition of Texas-based theaters from Star Cinemas Grill ("Star Cinemas"). Such is the impact of COVID-19 on the U.S. movie theater industry, that these very recently sanguine investors (with "robust expansion plans in the United States") have used their Chapter 11 filing as a pretext for calling on a wholesale rethink of the sector's business model (see "Press Statement," below), arguing that the sector (which may never return to pre-crisis levels) is overly generous to studios and landlords and leaves theater owners impossibly squeezed in the middle. 

Back to the more immediate matter of Star Cinemas; the fate of that acquisition indicative of just how quickly COVID-19 is turning many M&A transactions upside down. 

For these Debtors, in the course of just over a month:

(i)  They heralded their acquisition of Star Cinemas (agreed on March 10th and announced on March 13th). The Debtors' press release then stating: "The purchase reflects the on-going strategy of CMX Cinemas to establish a major footprint within the motion picture exhibition industry in the United States. The acquisition will position CMX as the seventh largest movie theatre chain in the United States with a presence in 13 states, 51 sites, and 504 screens [and] bolster CMX's robust expansion plans in the United States and comes on the heels of our recent acquisition of Cobb Theatres");

(ii) They backed out of the Star Cinema transaction (March 26th). According to the Complaint (defined below), "Cinemex’s counsel responded later that day, claiming that 'in light of COVID-19 related fallout, Cinemex will not and is not obligated to close this transaction. Among other things, Cinemex’s operations and finance teams lack pre-Closing access to Star Cinema theaters and the Corporate Employees managing those theaters. Attempting to close under these circumstances would imperil Cinemex personnel. Moreover, key personnel are located in Mexico City and cannot get to Houston regardless because the US/Mexico border is closed” [see the attached  Star Cinema complaint, and, for more on the Debtors' reliance on Trump press conferences ("No, I’m not concerned at all. No, we’ve done a great job with it”) and concerns over the health of those performing diligence at closed movie theaters, see the Debtors' motion to dismiss]; and 

(iii) They were named as a defendant in a complaint (the "Complaint," with Quinn Emanuel serving as defendant's counsel) filed by Star Cinema demanding that the Debtors be forced to complete the acquisition and lambasting the notion that the theater-closing ramifications of the pandemic could be a surprise to any of the parties (potential theater closures, Star Cinema insists, having been explicitly discussed and forming the basis for a negotiated 10% price reduction) or that it could possibly be perceived as a "material adverse event." The Complaint continues: "The Coronavirus loomed over the parties’ negotiations nearly every step of the way….Indeed, the parties were well aware of the specter of the Coronavirus in the days leading up to their execution of the Agreement and explicitly addressed the outbreak and its potential financial impact during negotiations. Cinemex received a reduction of the purchase price in recognition of that potential impact, including explicitly discussing that Star Cinema Grill could potentially shut down for months. Eventually, the parties agreed on the terms of the Transaction, and on March 10, 2020, they executed the Agreement, which provided for Cinemex’s purchase of the Companies for a total enterprise price of $ [redacted]. This amount, along with other adjustments in the Agreement, included an almost 10% discount from the parties’ initial discussions during the IOI stage. The discounted purchase price was agreed upon by the parties in consideration of the Coronavirus threat."

On April 25th, the Debtors filed a motion in respect of the Star Cinema litigation and requested an automatic stay of those proceedings in light of the Debtors' Chapter 11 filing.

Press Statement

In a statement announcing the Chapter 11 filings: The Debtors stated that the bankruptcy filing was "as a result of the economic crisis precipitated by the coronavirus pandemic."

The statement continues: "We are in a state of complete uncertainty as to when we can re-open our theaters and when our customers will feel safe and secure in returning to them given that there is presently no vaccine against the virus. We cannot forecast when — if ever — customer numbers will return to pre-crisis levels….We are not generating any revenues while having to pay high fixed costs. Even prior to filing for bankruptcy, we were spending over 30 percent of our revenues on lease-related expenses while studios ended up with 60 percent of every ticket sold.

We tried in good faith to negotiate with our creditors — who notwithstanding the crisis were seeking full payment and filing liens — to no avail….the studios, landlords and theater companies must take this as an opportunity to place the industry on a sound, long-term financial footing. To do so, there needs to be a rebalancing of the current economic arrangements, which disproportionately benefit the studios and landlords at the expense of the theater companies. The industry will not survive absent such an economic rebalancing. The studios will continue to need the revenues and publicity generated by theater companies notwithstanding digital distribution, and mall landlords will become even more reliant on movie theaters as retailers continue to migrate to the internet…A viable rebalancing would result in (1) studios getting a maximum of 40 percent of theater companies’ revenues; and (2) mall landlords providing the same terms to movie theaters that they currently provide to anchor tenants such as department stores. Movie theaters are increasingly the anchor tenants and landlords should treat them as such.

About the Debtors

CMX Cinemas, a wholly-owned subsidiary of Cinemex, opened its doors in April 2017 at Brickell City Centre, Miami, FL, offering new features to give guests an innovative and VIP movie-going experience. CMX provides state-of-the-art technology that can be enjoyed through different types of experiences: CMX CinéBistro, the luxury dine-in and in-seat service; CMX Market the innovative self-serve food hall movie experience and CMX Premium, the upgraded traditional theater with classic concessions. It also features the trendy and exclusive CMX Stone Sports Bar at select theaters, making CMX the one-stop destination for entertainment. CMX, with the acquisition of Star Cinema Grill, will have 51 sites [NB: take off 10 sites without the Star Cinema acquisition], 504 screens and more than 3,000 employees, in venues located in Florida, Illinois, Minnesota, Georgia, Alabama, North Carolina, Ohio, Virginia, Maryland, New York, New Jersey, Colorado and Texas. New openings are scheduled in Wrigleyville, Chicago, Illinois; American Dream, New Jersey; Coastland, Naples, Florida; and International Mall, Tampa, Florida. 

About Cinemex

Cinemex is one of the top ten cinema chains worldwide, with 351 sites in 104 cities, 3014 screens and more than 14,000 employees. Founded in 1995 with the intent to revolutionize the movie entertainment industry, Cinemex began installing multiplexes and stadium-style seating with the primary focus of attending every guest’s needs. Today Cinemex continues to offer innovating concepts in cinema-going, including Platino Cinemex and Cinemex Premium, state-of-the-art theaters equipped with luxury seating and first-class dining, Cinemex 3D, and the 4D experience. At Cinemex, our main goal is to offer the best entertainment to our guests.

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