Shares in Cineworld Group PLC (LSE:CINE) tumbled 70% in what may be the final nail in the coffin for the cinema operator after reports it is preparing to file for bankruptcy.
The group has been struggling to rebuild its attendance from pandemic lows and, according to a report in the Wall Street Journal, is expected to file a chapter 11 petition in the United States and is considering filing for insolvency proceedings in the UK.
The news comes just days after the chain warned that a lack of big-budget movies was hitting admissions and would persist until at least November.
Cineworld, which has 751 sites around the world and runs the Cineworld and Picture house chains in the UK, has reportedly appointed restructuring expert AlixPartners to advise on the next steps.
The business has never recovered from the pandemic, which left it saddled with huge debts coming as it did just after the acquisition of Regal and its legal dispute with Cineplex (TSX:CGX) after it pulled out of their planned merger.
Debt at the end of 2021 was US$4.8bn and on Wednesday the group said it was evaluating a fundraising or delivering transaction that would result in ‘very significant dilution' of existing equity interests.
"This is the latest twist in what’s been a Covid horror story for Cineworld after it failed to lure back enough moviegoers to help pay back its enormous debts," said analyst Susannah Streeter at Hargreaves Lansdown.
"Chapter 11 is considered to be a highly complex form of bankruptcy and would ordinarily only be undertaken if the company had exhausted all other avenues."
"It seems the discussions Cineworld had entered into earlier this week with stakeholders to obtain additional funding have not borne fruit but if it does file for bankruptcy, it’s unlikely to be the final chapter for the company."
"This type of bankruptcy known allows a company to stay in business and restructure its debt obligations but the plan has to be in the best interest of its creditors"
"Even as a reorganised entity, Cineworld will face a tough challenge ahead as it’s unlikely that ticket sales will ever fully recover to the heady days of the past, given the huge shake-up of the movie industry and the growing might of the streaming giants.’’
Shares shed 6.8p to 3p.