Cineworld Group PLC, the owner of Regal Cinemas, is preparing to file for bankruptcy within weeks after struggling to rebuild movie-theater attendance from pandemic lows, according to people familiar with the matter.
The London-based cinema company has engaged lawyers from Kirkland & Ellis LLP and consultants from AlixPartners to advise on the bankruptcy process, these people said.
Cineworld is expected to file a chapter 11 petition in the U.S. and is also considering filing an insolvency proceeding in the U.K., they said.
Earlier last week, Cineworld said that despite a gradual recovery in attendance since reopening theaters last year, recent admissions have lagged below expectations due to a limited film slate.
A company spokesman said on Friday that all its theaters are open for business as usual and it is "proactively evaluating strategic options to ensure we have the balance sheet strength and flexibility to adapt to market conditions."
While revenues have rebounded somewhat since Cineworld reopened its cinemas starting in April 2021, the recovery has been too little, too late for the company, which was founded in the U.K. in 1995 and acquired the Regal chain in 2018 for $3.6 billion.
Cineworld's performance is still below prepandemic levels. And aside from a couple of superhero films like Black Panther: Wakanda Forever scheduled for release in the fall, a sparse supply of content lies ahead in the second half of this year, as Hollywood studios have limited production, delayed releases or went straight to streaming amid uncertainty as to when theater attendance is expected to fully return.
Meanwhile, Cineworld faces coming maturities on its more than $5 billion debt load.
A deleveraging transaction in bankruptcy would likely dilute or wipe out equity interests in Cineworld, the second-largest cinema chain in the world behind AMC Entertainment Holdings Inc.
Cineworld is negotiating with its lenders to fund the costs of the bankruptcy process, according to a person familiar with the matter.
Representatives for Kirkland & Ellis didn't respond to a request for comment. A representative for AlixPartners declined to comment.
An in-court restructuring would give Cineworld the chance to cut debt, restructure or break certain lease obligations, and settle other liabilities, such as a recent legal judgment amounting to roughly $1 billion stemming from a soured merger with Canadian movie theater chain Cineplex Inc.
Cineworld has appealed the judgment and denied it is liable to Cineplex, which didn't respond to a request for comment.
Investors have been largely willing to fund companies in the entertainment, retail and cruise-line industries that had to close temporarily early in the pandemic, in hope they would rebound as lockdowns lifted.
After a rash of defaults in 2020, bankruptcy filings have hovered at historically low rates as central banks eased borrowing conditions for the most troubled businesses.
Cineworld itself narrowly escaped bankruptcy in 2020 after landing a lifeline from creditors while its nearly 800 theaters were shut due to Covid-19 restrictions.
Analysts expect defaults to grow modestly from those historic lows due to tightening monetary conditions and as investors become less willing to bankroll money-losing enterprises.
AMC, Cineworld's biggest competitor, has faced similar challenges of muted attendance and a limited supply of new releases during the pandemic, but AMC managed to raise more than $2.2 billion of equity to stay afloat, largely by tapping into the enthusiasm of individual investors who made it a meme stock and drove its shares to dizzying highs.
But Cineworld doesn't have an army of bullish traders at its back.
In an interview with The Wall Street Journal in October 2021, Cineworld chief executive Mooky Greidinger said he was happy for AMC and that "not every stock in the U.S. market is a meme stock."
Cineworld didn't generate a positive cash flow last year as it is still beset by steep rent costs and high interest payments on its debts, company filings show.
Studio executives project the 2022 box office to end with around $7 billion in total U.S. ticket sales, or about two-thirds of what prepandemic years yielded.
So far, the nation's overall screen count hasn't changed that much since the Covid-19 closures, with about 500 screens dropped between 2019 and today, according to the National Association of Theatre Owners.
That number is expected to increase in the coming months as small and midsize operators struggle without government subsidy payments, according to studio distribution executives.
However, Hollywood studio chiefs have recently indicated to shareholders that they want to emphasize theatrical releases as more people move on from the pandemic and streaming growth in the U.S. stalls.
But given the challenges that Cineworld is facing with its heavy debt load, recent legal judgment and the limited crop of new film releases expected for the near-term, it is almost certainly too late for the company to escape bankruptcy, people familiar with the matter said.
Alexander Saeedy and Erich Schwartzel contributed to this article.
