Cineworld Considers CVA to Save Its Business

Shares of Cineworld plunged over 7% on Thursday after a report in the Financial Times said the company is considering company voluntary arrangement (CVA) in a bid to save its business amid the pandemic. 

The pandemic forced the world’s second largest cinema chain operator to close all 657 theaters across the UK and US after authorities in numerous countries introduced lockdowns and banned citizens from going to cinemas. 

This led to postponements of major Hollywood blockbusters, including the new James Bond film “No Time to Die,” to push the complete cinema industry into turmoil. According to the latest financial results, Cineworld has a debt of £6.2 and is already in talks with its landlords to cut rent costs.

Moreover, the firm is also contemplating to enter a CVA as it will be easier to slash costs and secure new funding. According to the UK government guidelines, a Company Voluntary Arrangement (CVA) is used to pay creditors over a fixed period in case the company is insolvent.

“The insolvency practitioner will work out an ‘arrangement’ covering the amount of debt you can pay and a payment schedule. They must do this within a month of being appointed,” it is said on the government website

AEW, one of Cineworld’s landlords, sued the company for a debt of £308,000. This has prompted the company to seek alternative measures as some industry experts believe the company may have to perform additional restructuring actions to manage its debt.

According to FT, Cineworld engaged consulting firm Alix Partners to start talking with lenders as the management continues to look for solutions for its embattled business.  

Cineworld share price rallied strongly this month on news that both Pfizer/BioNTech and Moderna developed a vaccine with an efficacy rate of over 90%. However, the FT story published earlier today sent shares more than 8% lower.

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