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National CineMedia, LLC – Cinema Advertising Network Files for Bankruptcy with $1.15bn of Funded Debt Citing Long Covid (and in Advance of Regal Ruling); Debt-for-Equity Plan Leaves Secured Funded Debt w/86% of New Equity, Unsecured Funded Debt w/Warrants


April 11, 2023 – National CineMedia, LLC (“NCM LLC” or the “Debtor*”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, case No. 23-90291 (Judge David R Jones). The Debtor, "the largest cinema advertising network in the U.S.," is represented by John F. Higgins of Porter Hedges LLC. Further Board authorized appointments include: (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors, (iii) Latham & Watkins LLP as special corporate and investigation counsel (iv) Lazard Frères & Co. as investment bankers and (v) Omni Agent Solutions as claims agent.

An ad hoc group (the "Ad Hoc Group") comprising certain Consenting Term Lenders, Consenting Revolving Lenders, Consenting Secured Noteholders, and holders of Unsecured Funded Debt Claims are represented by Gibson Dunn as counsel and and Centerview as financial advisor.

* The Debtor is 98% owned by non-Debtor affiliate National Cinemedia, Inc. (Nasdaq: NCMI; "NCM, Inc."). Complicating matters, Regal Cinemas, Inc. ("Regal"), with whom the Debtor is engaged in an adversary proceeding in Regal's own Chapter 11 (filed on September 7, 2022, in the same Court as this case) is an affiliate of the Debtor because Regal owns more than 20% percent of the outstanding voting securities of National Cinemedia, Inc., which is the Debtor’s parent.

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.15bn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Computershare Trust Co, NA ($238.3mn unsecured notes claim), (ii) Cinemark USA Inc ($4.8mn "Network Partner" claim) and (iii) Regal Cinemas, Inc ($4.8mn "Network Partner" claim). The Debtor's top 30 unsecured creditors all have claims of over $200k and are a mix of "Network Partners" and trade creditors.

Filing Date Highlights

  • "Largest cinema advertising network in the U.S." files for bankruptcy with $1.15bn of funded debt
  • Debtor cites inability to recover "quickly enough from the drastic impact" of COVID-19 as leaving it with unsustainable capital structure and debt servicing requirements
  • RSA with unspecified levels of support from secured and unsecured funded debt holders has all of funded debt equitized (86% of emerged equity to secured debt holders and 14% to parent NCM, Inc.)
  • Holders of $230.0mn of unsecured notes to get warrants, general unsecured creditors to be paid in ordinary course; neither group to recover anything if creditors' committee is formed
  • Debtor believes it has sufficient cash on hand to see it through "expeditious" Chapter 11
  • RSA milestones include Plan confirmation and Plan effectiveness by July 25th and September 25th, respectively
  • Filing comes in advance of expected April 13th summary ruling in adversary proceeding in Cineworld Group plc bankruptcy relating to Regal ESA (Exhibitor Services Agreement) which Regal is looking to reject.
  • One of the "critical" conditions for RSA signatories is that Debtor's ESAs with American Multi-Cinema, Inc., Cinemark USA, Inc. and Regal are assumed.

In a press release announcing the filing (see also 8-K), the Debtor provided: "…the Company has…entered into a comprehensive Restructuring Support Agreement [NB: The Restructuring Support Agreement and Plan Term Sheet are attached at Docket No. 14] with the support of its secured lenders, through which all of the Company’s debt will be converted into equity of the reorganized Company. Under the RSA, NCM LLC will assume all of its critical contracts upon emergence, ensuring that the Company will maintain the largest national cinema advertising network….The RSA provides a clear roadmap for NCM LLC to quickly emerge without disrupting its operations or customer relationships. Upon confirmation of the restructuring outlined in the RSA, all of NCM LLC’s funded debt would be converted into equity, completely de-levering the Company’s balance sheet. Additionally, NCM Inc.’s management and NCM LLC’s other existing governance structures would be maintained to ensure continuity of ongoing operations and performance. NCM Inc. will receive an ownership interest in the restructured company of approximately 14%. Further, unless an official creditors committee is formed, all holders of General Unsecured Claims will be paid in full in the ordinary course under the RSA

Tom Lesinski, CEO of NCM Inc, commented “We are entering this process with the overwhelming support of our secured lenders and key stakeholders, which we expect will enable us to swiftly and responsibly emerge as a stronger company.”

Goals of the Chapter 11 Filing

The Ng Declaration (defined beow) provides: "NCM [LLC] filed this case following extensive, months-long negotiations with its key stakeholders culminating in a
restructuring support agreement (the 'Restructuring Support Agreement' or 'RSA') designed to enable NCM to quickly and successfully emerge from bankruptcy, without disrupting its operations or key customer relationships….After facing years of headwinds from reduced attendance at movie theatres due to the COVID-19 pandemic and the availability of video streaming services, the Debtor recognized the need to right-size its balance sheet so that it could continue to be the market leader in cinema advertising. The Restructuring Support Agreement ensures that NCM will emerge as a de-levered company with no significant debt and each of its key agreements in place. The Restructuring Support Agreement enjoys broad support from the Debtor’s key stakeholders, including more than two-thirds in principal amount of the Debtor’s Prepetition Secured Debt and the Debtor’s parent, NCM, Inc., which owns 100% of the Debtor’s existing membership units and is necessary to maintain the Debtor’s “Up-C Structure”….The Debtor intends to confirm its proposed plan and exit from bankruptcy expeditiously. 

The Restructuring Support Agreement ("RSA")

On the Petition date, NCM, NCM, Inc., and the Ad Hoc Group entered into the RSA [see Exhibit B to Docket No. 14 with the Plan Term Sheet attached thereto]. The RSA contemplates. among other things:

  1. the Up-C Structure shall remain in place to enable NCM and NCM, Inc. to continue to comply with the Joint Venture Agreements;
  2. the Debtor shall assume the ESAs, TRA, CUAA, MSA, and LLC Agreement, among other agreements, through a plan of reorganization as of the Plan Effective Date, subject to the terms of the Plan Term Sheet;
  3. pursuant to the Plan Term Sheet, holders of Prepetition Secured Debt and NCM, Inc. shall receive 86.2% and 13.8%, respectively, of the newly issued equity interests in Reorganized NCM (the 'New NCM Common Units'), subject to dilution as set forth in the Plan Term Sheet; and
  4. NCM shall emerge without any debt unless, following the NCMI 9019 Capital Contribution to adequately fund Reorganized NCM, NCM seeks to obtain a revolving credit facility (an 'RCF') from a third party lending institution; provided, that, despite best efforts, if NCM is unable to obtain an RCF in an amount and on terms in each case reasonably acceptable to the Required Consenting Creditors, an exit facility shall be provided by one or more members of the Ad Hoc Group in the form, solely or partially, of a first lien term loan provided by Consenting Creditors on arm’s-length terms in an amount estimated to be required to adequately fund the business (such amount to be determined among the Required Consenting Creditors, NCM, and their advisors).

In addition, consistent with the Plan Term Sheet, the RSA also incorporates the terms of the NCM 9019 Settlement, which provides, among other things, that NCM, Inc. shall affirm its obligations under the Joint Venture Agreements, maintain the Up-C Structure, and contribute approximately $15 million of cash on hand to NCM (the “NCMI 9019 Capital Contribution”) in exchange for New NCM Common Units, which shall dilute the amount of New NCM Common Units issued to holders of Prepetition Secured Debt and NCM, Inc. In addition, the Plan Term Sheet provides that if no Creditors’ Committee is appointed, (a) holders of General Unsecured Claims shall either be reinstated or paid in full in cash (i) upon the consummation of the Plan or (ii) on the date due in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such claims, respectively, and (b) the holders of Unsecured Funded Debt Claims will receive their pro rata share of the New NCM Warrants.

However, if a Creditors’ Committee is appointed, the holders of General Unsecured Claims and Unsecured Funded Debt Claims shall receive no recovery, or such recovery as agreed upon by the Ad Hoc Group and the Debtor. This treatment reflects the economic reality that the incremental costs imposed by a Creditors’ Committee would likely equal the amount otherwise needed to pay unsecured creditors, and the Debtor cannot afford to pay both amounts."

The RSA contemplates the following timeline for implementation of the Restructuring Transactions:

The Ng Declaration adds: "Critical to the Restructuring Support Agreement is the Debtor’s assumption of the Exhibitor Services Agreements or “ESAs” with American Multi-Cinema, Inc. ('AMC'), Cinemark USA, Inc. ('Cinemark'), and Regal Cinemas, Inc. ('Regal' and, together with Cinemark and AMC, the “Original Founding Members”). The ESAs—which grant NCM the exclusive right to place advertisements in theaters operated by the Original Founding Members and give the Debtor the largest theater-network in North America—account for approximately 76.5% of NCM’s annual revenues. Without the ESAs, the Debtor’s creditors would not agree to equitize almost $1 billion in debt and the Debtor’s efforts to reorganize would be significantly impaired."

Prepetition Indebtedness

As of the Petition date, the Debtor has approximately $1.15bn in total principal outstanding under its funded debt obligations, consisting of (i) $307.0mn in aggregate term loans; (ii) $217.0mn under revolving credit facilities; (iii) $400.0mn under a series of senior secured notes; and (iv) $230.0mn under a series of unsecured notes, as summarized in the following chart:

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Ng Declaration), Ronnie Ng, NCM Inc.'s Chief Financial Officer commented: “The COVID-19 pandemic has had, and continues to have, a significant negative impact on the Company’s business. Beginning in March 2020, the federal government and other state and local governments issued restrictions on travel, public gatherings, and other events in addition to social distancing guidelines. These governmental restrictions and required shutdowns resulted in the closure of most of the Debtor’s network theaters for approximately six months and thus the Debtor generated no in-theater advertising revenue during that time. When theaters began to reopen late in the third quarter of 2020, in-theater advertising revenue continued to be adversely
impacted as attendance at the reopened theaters was significantly lower than prior comparative periods due primarily to the shift in motion picture release schedules and local and state COVID-19 patron capacity limitations.

While the attendance levels have increased from the year ended December 30, 2021, attendance was not consistent throughout 2022 due to the variant spread and the variable timing of major motion picture releases. Ultimately, 2021 and 2022 in-theater advertising revenue remained significantly below historical levels. NCM estimates that it has lost about $850 million to over $1 billion in revenue as a result of the COVID-19 pandemic.

Moreover, in September 2022, Cineworld Group plc and certain of its subsidiaries, including Regal, filed for chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas (the 'Cineworld Proceedings'), the same court in which the Debtor now seeks chapter 11 relief. NCM and Regal are currently engaged in a dispute regarding the ESA entered into between Regal and NCM in the Cineworld Proceedings. In particular, Regal has sought to reject the Regal ESA, which the Debtor opposes, and the Debtor has commenced an adversary proceeding seeking, among other relief, a declaration that rejection would not terminate the
exclusivity and non-compete provisions in the Regal ESA.

That litigation remains pending, and a hearing on Regal’s summary judgment motion is scheduled for April 13, 2023.

….the Debtor’s business has simply not been able to recover quickly enough from the drastic impact that the COVID-19 pandemic had on the movie industry. The Debtor’s existing capital structure and corresponding debt service is unsustainable given the upcoming maturity under the Original Loan Agreement and the New Revolving Credit Agreement together with the interest payment due on the Unsecured Notes."

DIP Financing

The Debtor, with the assistance of its advisors, considered several financing options to fund the Chapter 11 Case, and concluded that with the Ad Hoc Group’s consent, the Debtor has sufficient cash collateral to administer the restructuring, especially given the broad support from the Debtor’s key stakeholders.

About the Debtors

According to the Debtors: “National CineMedia (NCM) is America’s Movie Network. As the largest cinema advertising network in the U.S., we unite brands with young, diverse audiences through the power of movies and popular culture. NCM’s Noovie® pre-show is presented exclusively in 47 leading national and regional theater circuits including AMC Entertainment Inc. (NYSE:AMC), Cinemark Holdings, Inc. (NYSE:CNK) and Regal Entertainment Group (a subsidiary of Cineworld Group PLC, LON: CINE). NCM’s cinema advertising network offers broad reach and unparalleled audience engagement with over 20,100 screens in over 1,600 theaters in 195 Designated Market Areas® (all of the top 50). NCM Digital and Digital-Out-Of-Home (DOOH) go beyond the big screen, extending in-theater campaigns into online, mobile, and place-based marketing programs to reach entertainment audiences. National CineMedia, Inc. (NASDAQ:NCMI) owns a 100% interest in, and is the managing member of, National CineMedia, LLC. For more information, visit www.ncm.com and www.noovie.com.“

Corporate Structure Chart


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