National Cinemedia, shaken by Ed Weiss, Cineworld bankruptcy, gets fresh ten-day extension on interest payment; what lies ahead

National Cinemedia today said it has negotiated a second extension of the grace period on interest payments originally due on February 15.

A one-month grace period for payments was due to end on March 15, about $6.6 million, after the company announced that lenders had agreed to 17 days. Major rating agencies Moody’s and S&P Global then declared the cinema advertising firm in technical default and raised the possibility of restructuring.

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With that deadline looming, the company in an SEC filing extended another ten days of relief — or the total grace period from 47 to 57 days — to pay interest on its 5.75% senior unsecured notes due in 2026.

It reiterated that “there is sufficient liquidity to pay interest on the notes” but that “extending the grace period would enable [it] To continue to negotiate with … in respect of lenders [its] indebtedness. At this time, there is no settlement with respect to the indebtedness of NCM LLC.”

Shares fell 13 cents to 8% today. It’s been a penny stock for some time and said last year it was notified by Nasdaq that it risks a delisting.

Moody’s has downgraded its credit profile to “high risk of default.”

“A difficult macro environment, uncertain advertising demand and the recent bankruptcy filing and litigation of NCM’s primary exhibiting partner will make it difficult for NCM to improve earnings to a level that supports its current capital structure,” the agency said. The partner it’s referring to is Regal Cinemas, the parent of which Cineworld filed for Chapter 11.

S&P cut its rating from CCC to D, writing last week, “We view the delayed interest payment as a default.” It expects that the company will “engage in an in- or out-of-court reorganization.”

The company is the largest player for in-cinema advertising, followed by Screenvision. The two tried to merge in 2014 and probably should have gained a stronger position in the market but the Justice Department sued to block the deal and it fell apart.

When theaters were shut, Covid hit it hard, then when life resumed, even then, advertising was running slow on movie screens. Then two things happened: inflation and rising interest rates fueled fears of a recession starting last year, and advertisers pulled back across the board; And National Cinemedia’s biggest customer and part-owner Regal’s parent Cineworld filed for bankruptcy in September. Cineworld is closing some Regal theaters. It is also trying to exit or renegotiate its long-term contract with National Cinemedia and it is unclear how that will pan out. Moody’s said Regal contributed more than 30% of National CineMedia’s annual network presence pre-pandemic.

Cineworld’s lawyers said at a hearing this week that they expect to present a reorganization plan soon and have set an April 20 date to discuss it with the judge.

“It’s sad. It’s still a great company, still a viable business. None of the bad things that happened to them are their fault,” said an industrialist who knows the company.

National Cinemedia Inc. owned 47.5% in NCM, with the remaining interest split between founding members Cinemark (25.4%), Cineworld/Regal (23.6%) and AMC Entertainment (3.5%). Its ownership and board composition, both by its biggest customers and with it, who also happen to be business rivals, have created complications from the start.

Earlier this month, it entered into a retention agreement offering payments to CEO Thomas Lesinski, CFO Ronnie Ng and head of sales and marketing Scott Fellenstein.

Analysts generally like the company and see improvements in box office attendance as well as its business, but acknowledge challenges and that it has fallen out of favor with investors for obvious reasons. An analyst, B. Riley’s Eric Wold said earlier this month the company was dropping coverage of National Cinemedia “due to a reallocation of resources”. Our final rating is Neutral with a final price target of $0.25.”

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