Cinema group Cineworld (CINE) may need an extra $300 million liquidity to get it through the current crisis, having announced plans to close its UK and US cinemas again on a temporary basis.

Investment bank Jefferies says as at 31 August, Cineworld had c$260 million in liquidity (c$150 million cash, plus $110 million undrawn revolving credit facility). ‘We assume $40 million to $70 million monthly cash burn when shut (higher when quarterly interest payments due),’ says analyst James Wheatcroft.

‘Our monthly cash burn and liquidity analysis shows a $300 million liquidity requirement (assuming a $50 million buffer). Conservatively, we have assumed a potential $200 million 2Q21E CARES Act payment nets against a payment potentially due to former Regal shareholders.’

Wheatcroft believes Cineworld will seek additional liquidity from government loans, revolving credit facility extension and covenant waiver, extended term loans and private placements.

‘Assuming all current shareholders are shareholders because they believe in cinema life after Covid, then an equity raise could provide another financing avenue,’ he adds.

Film studios continue to delay big-name releases and the postponement to April 2021 of the James Bond film No Time To Die seems to have been the catalyst for Cineworld closing many of its theatres again. Subsequently, Dune has been pushed back a year to October 2021 and The Batman has been delayed until Spring 2022.

The primary driver for getting people into cinemas is the film slate and there has been a dearth of big-name new releases in recent months. Film studios don’t want to risk releasing potential blockbuster hits unless they are comfortable that there will be a willing audience to see them on the big screen.

One problem of Cineworld’s own making is the huge debts it has built up acquiring businesses including US chain Regal. Even without the aborted $2.3 billion purchase of Canadian cinema group Cineplex the company reported net debts of $8.2 billion at the end of June 2020. This far exceeds the current £380 million equity value of the business.

It is almost certain that Cineworld will need to refinance its balance sheet and accelerate discussions with landlords to find a solution for its substantial lease liabilities which amounted to $166 million in the first half of the year.

The quick unravelling of business which has seen the shares drop nearly 90% over the last year is a reminder to investors of the dangers of too much debt.

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