Shares in Cineworld (CINE) jumped on Monday after the cinemas chain secured more than $750 million of extra funding to see it through pandemic closures. The financing agreement with lenders will also see the company's debt covenants extended until June 2022.
Cineworld shares rallied 19% in early trading, hitting 55p levels not seen since before the latest lockdown in early September.
New lockdowns and the continued delay of film releases by the major studios has prompted Cineworld to bolster its financial resources.
The company has secured a new three-year $450 million debt facility which matures on 23 May 2024 alongside which it will issue 153.3 million warrants to the lenders with anti-dilution features. The warrants represent around 10% of the company’s aggregate share capital assuming they are exercised.
A warrant is a derivative instrument that gives the holder the right but not the obligation to buy shares at a set price.
The new facility is subject to certain operational and financial covenants. It takes the total aggregate gross financing to $4.9 billion at an average interest rate of 4.5%.
In addition, the group expects to receive over $200 million in tax refunds in early 2021.
An $111 million revolving credit facility which was due to mature in December 2020 has also been extended to May 2024.
REDUCING CASH BURN
The company has stopped all capital expenditure projects and agreed ‘material’ long term rent deferrals with key landlords. Together with several other operational measures, monthly cash burn has reduced to around $60 million while cinemas remained closed.
This means that under the company’s base case scenario where cinemas reopen no later than May 2021, there is enough financial headroom for 2021 and beyond.
If reopening happens later than May 2021, the group expects to retain sufficient liquidity for a number of additional months but would require lender support to deploy that liquidity.
Jefferies said the new financing was more than double their $300 million estimate and means Cineworld is’ well place in a re-opening scenario.’