Cineworld Group Plc – Cinema Operator Seeks Approval of Pricey $1.94bn DIP Financing Package from Prepetition First Lien Lenders, Including $664mn of Incremental Liquidity

September 7, 2022 – The Debtors requested Court authority to: (i) access $1.94bn in new money, debtor-in-possession (“DIP”) financing to be provided by an ad hoc group of Prepetition First Lien Lenders (the "Ad Hoc Group" or “DIP Lenders”) and (ii) use cash collateral [Docket No. 52]. A DIP Term Sheet is attached as Exhibit A to the motion (p.141).

The requested DIP financing is comprised of: (i) $664.0mn of new money working capital term loans (the “Working Capital DIP Commitments”) with $514.0mn to be made available upon entry of an interim DIP order and $150.0mn available upon entry of a final DIP order, (ii) $1.0bn of DIP Loans available upon entry of an interim DIP order to be used to refinance the Prepetition Priming Loans (including interest and prepayment premiums, collectively, the “Priming Loan Refinancing”), and (iii) $271.0mn of DIP Loans available upon entry of an interim order to be used to effectuate the repayment of the entirety of the Debtors' foreign, non-Debtor borrowings (the "RoW Loan Transaction").

Highlights

• Debtors Down to Last $4.0mn of Cash on Hand
• $1.94bn DIP Package from Prepetition First Lien Lenders 
• $1.0bn Earmarked to Repay Prepetition Priming Debt, Including $855.0mn of Principal and Hefty Interest/Prepayment Premiums (Debtors Reticent to Share Details/Breakdown)
• $271.0mn Earmarked to Repay Rest of World ("RoW") Borrowings of Non-Debtors to Avoid Expensive/Complicated "Ancillary Proceedings in Multiple Foreign Jurisdictions"
• Supported by "58 Percent of the Group’s Entire Capital Structure"
• Interest at SOFR plus 10%, with Fees to Include 4% Backstop Fee, 2.00% "Yield Payment," 1% Exit Fee and Possible 1.00% Extension Fee

Case Status 

On September 7, 2022, Cineworld Group plc and 104 affiliated Debtors (“Cineworld” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $10.0bn and $50.0bn.

Key Terms of the DIP Facility:

• Borrower: Crown Finance US, Inc., a corporation organized under the laws of Delaware.
• Guarantors: The DIP Facility shall be guaranteed by (a) Cineworld Group and (b) Holdings and each of its existing and future wholly-owned subsidiaries, but excluding in all respects (i) any Specified Immaterial Subsidiary (which for this purpose shall also include CDD UK Parent Limited and CDD UK Borrower Limited) and any Foreign Immaterial Subsidiary (each as defined in the Prepetition Priming Credit Agreement), (ii) the RoW Obligors, the Dutch TopCo, and the subsidiaries of Dutch TopCo (it being agreed in any event that all Persons that are obligors under the Prepetition Priming Credit Agreement will be a guarantor of the DIP Facility) (collectively, the “DIP Obligors”; and any DIP Obligor that is incorporated in England & Wales is referred to herein as a “UK DIP Obligor”).
• DIP Agent: Barclays Bank plc, as administrative agent.
• Backstop Parties: Certain of the Prepetition Legacy Facility Lenders that are members of the ad hoc group represented by Arnold & Porter Kaye Scholer LLP and Houlihan Lokey, Inc. (the “Ad Hoc Group”) that execute a backstop commitment agreement, Barclays Bank PLC and their respective successors and assigns (collectively, the “Backstop Parties”).
• DIP Lenders: The Backstop Parties and certain Prepetition Legacy Facility Lenders (other than the Backstop Parties) that, after the Closing Date, agree to participate in the DIP Facility (collectively, the “DIP Lenders,” and, together with the DIP Agent, the “DIP Secured Parties”).
• Commitment: The DIP Facility shall consist of a senior secured, superpriority priming U.S. dollar term loan facility in an aggregate principal amount of $1.935bn (the “DIP Commitments,” and such loans, the “DIP Loans”), consisting of (x) $664.0mn which the Borrower shall be permitted to draw, in accordance with, and subject to the terms and conditions set forth in, this DIP Term Sheet (the “Working Capital DIP Commitments,” and such loans, the “Working Capital DIP Loans”), (y) $1.0bn which shall be used to refinance in full the outstanding principal amount of the Prepetition Priming Loans and all accrued and unpaid interest thereon and to pay fees and expenses outstanding under the Prepetition Priming Credit Agreement and related documents (including the applicable prepayment premiums in respect of the Prepetition Priming Loans) (collectively, the “Priming Loan Refinancing”), and (z) approximately $271.0mn (the “RoW Debt Purchase Price”) which shall be used by NewCo to purchase from the RoW Lenders the outstanding principal amount of the RoW Loans (including all accrued and unpaid interest thereon and any applicable prepayment premiums in respect of such RoW Loans) (such obligations, the “RoW Credit Facility Obligations,” and the transaction, the “RoW Loan Transaction”).
• New Money: $664.0mn
• Roll-Up: No per se roll-up but borrowings proceeds will be sued to repay $1.0bn of Prepetition Priming Loans and $271.0mn RoW indebtedness
• Interest Rate: One (1) month SOFR (Secured Overnight Financing Rate) (plus a SOFR adjustment of 0.10%) plus 10.00%, subject to a SOFR floor of 1.00%, payable monthly in arrears.
• Default Rate: 2.00% above applicable rate
• Use of Proceeds: Subject to usual and customary provisions to be set forth in the DIP Orders, Borrower will use the proceeds of the DIP Facility to, among other things:

1. pay fees, interest, and expenses associated with the DIP Facility;
2. subject to entry of the Interim DIP Order, (i) repay the Prepetition Priming Loans and other obligations under the Prepetition Priming Credit Agreement, and (ii) consummate the RoW Loan Transaction;
3. provide for the ongoing working capital and capital expenditure needs of the Debtors during the pendency of the Chapter 11 Cases;
4. fund the First Lien Adequate Protection (as defined below); and
5. fund the costs of the administration of the Chapter 11 Cases (including the Carve-Out), in each case subject to the Budget and Variance Limit.

• Fees: The Borrower agrees to pay the following fees:
  • Backstop Fee: A fee in the amount of 4.00% of the aggregate principal amount of the Backstop Commitments shall be earned and payable in cash upon the Closing Date, paid ratably to all Backstop Parties based upon their respective Backstop Commitments.
  • Yield Payment: On the Closing Date, the Borrower shall pay to the DIP Agent for the account of the DIP Lenders a fee of 2.00% on the aggregate principal amount of DIP Commitments, payable to each DIP Lender in cash ratably based on each DIP Lender’s proportion to its share of the DIP Commitments.
  • Extension Fee: As a condition precedent to any Extension, the Borrower shall pay to the DIP Agent for the account of the DIP Lenders a fee of 1.00% on then aggregate outstanding principal amount of the DIP Loans and remaining outstanding DIP Commitments, payable to each DIP Lender in cash ratably based on each DIP Lender’s proportion to its share of the then aggregate outstanding principal amount of the DIP Loans and remaining outstanding DIP Commitments.
  • Exit Fee: A fee of 1.0% on the aggregate original principal amount of DIP Commitments shall be fully earned on the Closing Date and shall be payable to the DIP Lenders on the earlier of (x) the Maturity Date and (y) date on which the DIP Obligations are paid in full (whether through a refinancing, conversion of all or a portion of the DIP Obligations into an exit facility, or otherwise).
• Maturity Date: The earliest of:

1. the date falling twelve (12) months after the commencement of the Chapter 11 Cases, subject to no more than three (3) one (1) month extensions (each, an “Extension”) at the sole discretion of the Majority Lenders,
2. the effective date of any chapter 11 plan of reorganization of the DIP Borrower or any other Debtor (such date, the “Plan Effective Date”),
3. the consummation of a sale or other disposition of all or substantially all of the equity or assets of the Debtors,
4. the date of prepayment in cash in full by the Debtors of all DIP Obligations and termination of all of the DIP Commitments in accordance with the terms of the DIP Facility, and 
5. the date of termination of the DIP Commitments and/or acceleration of any outstanding extensions of credit following the occurrence and during the continuance of an event of default under the DIP Facility

• Milestones: The DIP Loan Agreement will include certain milestones (the “Milestones”) related to these Chapter 11 Cases, including the following:

1. Deadline the Debtors shall commence the Chapter 11 Cases by filing voluntary petitions under chapter 11 of the Bankruptcy Code with the Bankruptcy Court no later than September 6, 2022 (the “Petition Date”).
2. Deadline for entry of Interim DIP Order by the date that is no later than September 9, 2022.
3. Deadline for entry of Final DIP Order by the date that is no later than October 6, 2022.
4. Deadline the Debtors will have delivered a lease optimization plan, and an owned real estate optimization plan each in form and substance acceptable to the Majority Lenders (an “Acceptable Real Estate Plan”); no later than October 15, 2022.
5. Deadline the Debtors shall have delivered proposed processes and parameters related to a customary (for Debtors’ industry and companies of Debtors’ size) proposed business plan (the “Business Plan”) including, among other things, parameters related to lease agreements (the “Business Plan Parameters”) to the DIP Lenders; no later than October 15, 2022.
6. Deadline the Debtors and the Majority Lenders shall have agreed on acceptable Business Plan Parameters; no later than October 20, 2022.
7. Deadline the Debtors shall have delivered a Business Plan (consistent with the agreed acceptable Business Plan Parameters) to the DIP Lenders; no later than November 8, 2022.
8. Deadline the Debtors and the Majority Lenders shall have agreed on an acceptable Business Plan; no later than November 14, 2022.
9. Deadline for entry by this Court of a (i) sale motion and bidding procedures motion for an Acceptable 363 Sale (the “Sale and Bidding Procedures Motion”) or (ii) a chapter 11 plan, acceptable to the Majority Lenders, with respect to the Debtors (the “Acceptable Plan”) and a disclosure statement, acceptable to the Majority Lenders, relating to the Acceptable Plan (the “Acceptable Disclosure Statement”); no later than November 21, 2022.
10. Sale Motion/363 Sale
11. Deadline for hearing to consider approval of the Bidding Procedures Motion; no later than December 21, 2022.
12. Deadline for bidding under the Bidding Procedures Order; no later than February 10, 2023.
13. Deadline for any auction contemplated by the Bidding Procedures Order, if necessary, shall be conducted; no later than February 17, 2023.
14. Deadline for the sale hearing; no later than February 22, 2023 (subject to Court’s availability)
15. Plan/Disclosure Statement
16. Deadline for hearing on the Acceptable Disclosure Statement shall occur no later than January 3, 2023 and an order approving the Acceptable Disclosure Statement shall be entered no later than January 5, 2023.
17. Deadline for order confirming the Acceptable Plan; no later than February 28, 2023.

DIP Financing Motion

The motion [Docket No. 52] states, “…the Debtors urgently require additional liquidity. As described in the Mesterharm DIP Declaration, the Debtors enter these Chapter 11 Cases with less than $4 million cash on hand. Absent immediate financing, the Debtors risk liquidation or a significant curtailing of their operations. Accordingly, in the lead up to the filing of these Chapter 11 Cases, the Debtors and their advisors worked diligently to identify potential sources of postpetition financing. Through their proposed investment banker, PJT Partners LLP (‘PJT’), the Debtors first reached out to an ad hoc group of existing first lien lenders that had organized with Arnold & Porter Kaye Scholer LLP as counsel and Houlihan Lokey, Inc. as financial advisor (the ‘Ad Hoc Group’). This initial outreach revealed that members of the Ad Hoc Group would be willing to provide postpetition financing to fund a comprehensive restructuring.

Contemporaneously with such outreach, the Debtors, through PJT, contacted other stakeholders and third-parties outside of the Debtors’ capital structure. While the Debtors’ diminishing liquidity position and the need to potentially restructure their balance sheet through a comprehensive deleveraging transaction were widely broadcast through the press and public statements made by the Group before the filing of these Chapter 11 Cases, the market’s interest in providing the Group with financing was, nevertheless, minimal. Obtaining postpetition financing was made harder by the fact that an overwhelming majority of the Debtors’ assets are encumbered by valid and perfected first-priority liens, the majority of which are held by the Ad Hoc Group. Furthermore, restrictive language in the Debtors’ prepetition secured financing arrangements effectively provides the Ad Hoc Group with a blocking position over the Debtors’ ability to raise significant postpetition financing and pursue a comprehensive restructuring. And, through discussions with the Ad Hoc Group, it became clear that they would not consent to the Debtors’ incurrence of postpetition priming financing by any other party. Unsurprisingly, no third-party came forward with any actionable proposal for a facility that would meet the Debtors’ substantial liquidity needs and avoid a protracted, uncertain, and expensive priming dispute. The Debtors therefore pursued debtor-in-possession financing to be provided by the Ad Hoc Group. Those negotiations successfully culminated in a comprehensive postpetition financing package on the terms set forth herein.

…failure to obtain DIP financing that provides for the paydown in full of the RoW Lenders’ debt under the RoW Credit Facility would seriously jeopardize the Group’s RoW operations. Pursuant to the RoW Credit Agreement, a chapter 11 filing by Cineworld Group plc—a guarantor thereunder—triggers an event of default and entitles the RoW Lenders to exercise their contractually-provided rights and remedies. Absent chapter 11 protection (or other foreign insolvency protection) for the RoW Obligors—non-Debtor affiliates in these Chapter 11 Cases (other than Debtor Cineworld Group plc)—or a waiver/forbearance from the requisite RoW Lenders relating to such default, the Group’s valuable RoW operations would be at risk. Given that the RoW Obligors are incorporated in various foreign jurisdictions, filing such entities for chapter 11 and potentially ancillary proceedings in multiple foreign jurisdictions would involve significant cross-border complexities that would be extremely disruptive to day-today operations and likely result in significantly increased professional fees. Additional entities filing for bankruptcy could also cause vendors and customers to lose confidence, employee loss, and increase demands on the management team. In initial discussions, the RoW Lenders made it clear that they would need to be repaid. The Debtors negotiated separately with the DIP Lenders and the RoW Lenders to create a transaction that makes the RoW Lenders whole, while avoiding the value destructive path of commencing insolvency proceedings for the RoW Obligors. Eventually, the Debtors reached agreement on the RoW Loan Transaction, which coalesces critical support from the RoW Lenders around the Debtors’ restructuring while also maximizing value of the Debtors’ business for the benefit of its stakeholders. The RoW Loan Transaction protects the enterprise without prejudicing other creditors and the finality of the RoW Loan Transaction is critical to the restructuring.

Overall, the DIP Facility is the culmination of extensive prepetition negotiations between the Debtors and the Ad Hoc Group, and is the only actionable proposal that the Debtors’ received. The DIP Facility is provided, and otherwise supported, by holders of nearly 58 percent of the Group’s entire capital structure. Access to the proposed DIP Facility, supported by a majority of the Group’s capital structure, will send a clear signal to the Debtors’ stakeholders that the Debtors’ business is on the path to improved operational results, encouraging them to work cooperatively with the Debtors through the restructuring. This is especially true for the Debtors’ RoW operations…. the Debtors and their estates would suffer immediate and irreparable harm if the Debtors were denied the financing needed to sustain on-going business operations during the critical first weeks of these Chapter 11 Cases. Without access to the DIP Facility, the Debtors would likely need to commence additional cases for all non-Debtor affiliates and face potential near-term liquidation—all to the serious detriment of their stakeholders. Doing nothing and living with the risk of remedies being exercised against the RoW Obligors is a highly untenable option. The DIP Facility ensures that the Debtors (a) have sufficient funding to consummate a value-maximizing restructuring transaction and (b) can continue to operate uninterrupted in these Chapter 11 Cases. Further, as set forth in the Zelin Declaration, the terms of the DIP Facility are reasonable under the circumstances, and were the product of good faith, arm’s-length negotiations.

Marketing Efforts

In a declaration in support of the DIP motion [Docket No. 46], the Debtors’ Investment Banker, Steven Zelin of the firm PJT Partners LP states, “…since March 2020, the Company has attempted to address the challenges posed by industry-wide disruptions caused by the COVID-19 pandemic. To that end, the Company has executed various financing transactions since the onset of the COVID-19 pandemic to shore up liquidity and obtain relief from potential breaches of financial covenants. Those transactions included, among other things: (a) increasing availability under the Debtors’ Revolving Credit Facility by $110.8 million in 2020; (b) securing a new $250 million term credit facility in the form of the RoW Credit Facility in 2020; (c) securing a new $450 million term loan facility in 2020 in the form of the Prepetition Priming Facility; (d) issuing $213 million in principal amount of Convertible Bonds in 2021; and (e) securing $200 million of incremental term loans under the Prepetition Priming Facility in 2021. While critical to extending runway for the Company’s operational recovery from the effects of COVID-19, unfortunately, these transactions did not prove to be a permanent solution to the Company’s continuing financial and operational problems.

Accordingly, the Company and its advisors evaluated potential paths forward— including both in- and out-of-court solutions. As a result of impending liquidity constraints, it quickly became clear to the Debtors and their advisors that chapter 11 proceedings may be required. A chapter 11 process could allow the Debtors to obtain access to mission-critical liquidity, which would subsequently allow for the opportunity to provide a comprehensive restructuring that could deleverage the Company’s capital structure and rationalize the Debtors’ burdensome U.S. lease portfolio. The Debtors and their advisors therefore began to identify potential sources of postpetition financing and evaluate the required size of any such financing.

First, the Debtors entered into non-disclosure agreements with an ad hoc group of Prepetition First Lien Lenders that, given the Company’s much-publicized liquidity position, had organized with Arnold & Porter Kaye Scholer LLP and Houlihan Lokey, Inc. (the ‘Ad Hoc Group’). The Debtors and the Ad Hoc Group engaged in discussions regarding the terms of a comprehensive restructuring transaction, including any postpetition financing required for a chapter 11 process. During the course of these conversations, the Ad Hoc Group indicated that they would be willing to provide such financing to fund a comprehensive restructuring process.

Contemporaneously with their discussions with the Ad Hoc Group, the Debtors, with the assistance of their advisors, also held discussions with other stakeholders and third-parties outside of the Debtors’ capital structure regarding potential financing for a chapter 11 process. The Debtors shared diligence materials (including proposed budgets and projections) and entered into non-disclosure agreements with certain of these parties to discuss the structure of a potential financing. While the Debtors’ liquidity needs and the need to potentially restructure their balance sheet through a comprehensive deleveraging transaction were widely broadcast through the press and public statements made by the Company before the filing, including on August 17, 2022, the market showed limited interest in providing financing. The Debtors did not receive any offer or combination of offers from these stakeholders (or any other third-party).”

Prepetition Indebtedness

As of the Petition Date, Cineworld had approximately $5.34bn in total funded debt obligations, approximately $5.08bn of which is held by Debtor entities. The following table depicts the Debtors’ prepetition capital structure:

Proposed Budget

About the Debtors

According to the Debtors: “Cineworld Group plc was founded in 1995 and is now one of the leading cinema groups in Europe. Originally a private company, it re-registered as a public company in May 2006 and listed on the London Stock Exchange in May 2007. Currently, Cineworld Group plc is the only quoted UK cinema business. Cineworld's acquisition of Regal Entertainment Group has created the second largest cinema business in the world (by number of screens). Cineworld currently operates in the UK, Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania, Israel and the US."

Corporate Structure Chart

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