Moody's Downgrades Cineworld On Operating Challenges, Second Wave Fear

(Alliance News) - Moody's Investors Service downgraded Cineworld Group PLC's corporate family ...

Alliance News 2 October, 2020 | 6:58AM
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(Alliance News) - Moody's Investors Service downgraded Cineworld Group PLC's corporate family rating late Thursday to Caa3 from B3, reflecting "significant operating challenges" amid the Covid-19 pandemic as well as the possibility of a second wave.

The ratings agency downgraded the cinema chain's probability of default rating to Caa3-PD from B3-PD. Moody's also downgraded ratings of the company's outstanding USD3.33 billion and the EUR213 million of senior secured term loan B due 2025 and a USD573.3 million senior secured revolving credit facility due 2023.

Additionally, Moody's maintained its negative outlook on all of the Brentford, England-based firm's ratings. This reflects Cineworld's "very tight liquidity position" as well as uncertainty around cinema attendance levels.

"Moody's decision to downgrade Cineworld's ratings to Caa3 from B3 reflects the significant operating challenges facing the company as the coronavirus outbreak prolongs globally with a high degree of uncertainty around a potential second wave that could have more severe impact on the business performance," said the ratings agency.

Moody's pointed out that even though 561 of Cineworld's 778 theatres have re-opened, its liquidity profile is tightening again as its USD110.8 million revolving credit facility extension, presently undrawn, that was sought in May 2020 is approaching a December expiration.

Further, should the recovery in box office performance in the fourth quarter of 2020 and into 2021 remain "challenged", Cineworld could be in breach of financial covenants on its revolving credit facility - possibly until 2021 end - as well as on its USD250 million of secured loan with private investors.

Moody's noted, however, that Cineworld is in advanced talks with banks for covenant waivers for the revolving credit facility.

Gunjan Dixit, a Moody's vice president, said: "If the 200 remaining cinemas that are currently closed in the US were not to be open before the end of October 2020, or attendance levels remained significantly low or there are further delays in the Q4 2020 scheduled significant movie releases to 2021, then Cineworld could easily run short of liquidity.

"The company needs to urgently replenish its liquidity by way of seeking an extension of its maturing RCF facility and additional debt or potential equity raise. The current situation is pointing to a unsustainable capital structure and a high risk of default in case the company fails to get the required additional funding."

A ratings upgrade would be possible in Cineworld's operating profitability looks to be improving on a sustainable basis in 2021 and its liquidity profile is enhanced and sustained.

A further downgrade might occur is Cineworld's liquidity position tightens further or if there is a debt restructuring or bankruptcy filing.

Outlook-wise: "Stabilisation of the outlook would require the company to meaningfully improve its liquidity position by arranging for additional funding in a timely manner."

Shares in Cineworld closed down 0.7% at 40.49 on Thursday and are down 82% year-to-date.

By Anna Farley; annafarley@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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