Research: Rating Action: Moody’s Gives Cineworld DIP Facility a B1 Rating

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London, October 07, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a B1 rating to Crown Finance US’ $1,785 million Senior Secured Designated Debtor In Possession (DIP) term loan facility, Inc. (DIP) (Cineworld or the Company). The DIP Facility’s B1 rating primarily reflects the collateral coverage available to lenders and the structural characteristics of the DIP Facility.

On September 8, 2022, the United States Bankruptcy Court for the Southern District of Texas (the Court) approved a $1.785 million Global DIP Loan Facility. [1]. The DIP Facility will mature on September 7, 2023, with up to three separate one-month extension options under certain circumstances.

This DIP loan rating is assigned at a given time and will be retired as soon as possible. Cineworld Group plc and certain of its subsidiaries and affiliates filed for Chapter 11 bankruptcy on September 7, 2022. Subsidiaries and affiliates outside the United States, United Kingdom and Jersey do not were not included in the filing and are not part of the Chapter 11 processes. Moody’s subsequently withdrew all ratings of Crown UK Holdco Limited and Crown Finance US, Inc.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The B1 rating assigned to the DIP loan facility is primarily underpinned by collateral coverage, which includes tangible and intangible assets and equity interests in subsidiaries. The values ​​of these assets depend on a number of variables which can lead to a wide range of results. The rating also reflects the substantial risks associated with executing the reorganization. These complexities include the allocation of value between pre-petition debts under multiple facilities and the significant size of contingent liabilities resulting from the ongoing lawsuit filed by Cineplex Inc. in Canadian courts in 2020.

While continued capital expenditures are required to meet the desire of movie-going consumers for a state-of-the-art cinematic experience, we believe the company could sustain a reorganization with a significantly lower amount of debt. and debt-like obligations, subject to uncertainties surrounding structural changes in the film industry, exacerbated by the pandemic. The company entered the COVID pandemic with high debt, following strategic acquisitions and continued investment in theater site improvements. The prolonged closures of cinemas resulting from the restrictions linked to the pandemic have had a profound impact on activity. With the gradual reopening of movie sites, the movie slate has suffered from studio delays in productions and releases, and in some cases, the release of titles directly to streaming services. These factors, along with uncertainty related to the Cineplex litigation, the company’s inability to obtain relief from its existing lenders, and short-term debt maturities were, according to Moody’s, the primary causes of the bankruptcy.

Nonetheless, Moody’s recognizes the successful release of key blockbusters in the first half of 2022, including Top Gun: Maverick; Doctor Strange and the Multiverse of Madness; Jurassic World Dominion and The Batman indicating the popularity of these types of releases with movie audiences.

The rating also takes into account that the $1,785 million DIP facility represents 19% of pre-petition debt (where pre-petition debt includes total reported debt and lease liabilities as of June 30, 2022, and excludes contingent liabilities associated with the Cineplex litigation). Of the total DIP facility of $1,785m, $514m includes new funds, with the balance used to purchase the remaining global debt ($271m) and offered to refinance seed loans existing ($1.0 billion).

The DIP Loan Facility is a $1,785 million multi-draw senior secured facility, of which $785 million became available following Court approval on September 9, 2022. [2], largely to meet immediate cash needs. The remainder of the DIP loan facility is expected to be available following final Court approval on October 31, 2022 and will be used to refinance existing seed loans. The DIP loan facility matures on September 7, 2023 with the option of three one-month extensions, under certain circumstances. The loan facility is secured by the assets of the Cineworld Group and includes interests in subsidiaries and benefits from guarantees from all UK, US and Jersey subsidiaries which are included in the Chapter 11 and Chapter 11 cases. almost all of the subsidiaries not covered by the chapter. 11 cases.

Moody’s considers valuation estimates, including asset liquidation and EBITDA multiples, to recognize the nature of the non-asset business and the liens and guarantees provided as security for the DIP Loan Facility. The B1 rating is based on the assumption that the DIP term loan collateral coverage will be within a range of 1.25x to 1.5x. Moody’s believes there is potential for asset valuations to rise in the context of a reorganization, but that the current difficult economic conditions, the downward revision to the company’s earnings outlook for 2023 and 2024 announced in the As part of the publication of the interim financial statements of June 30, 2022, the uncertainties related to studio production release agreements and the risk of executing an operational turnaround create uncertainties as to the value of the assets. Moody’s also considers the valuation of intangible assets and equity interests providing the bulk of collateral support to be highly sensitive to earnings and multiple estimates that are uncertain in the current economic environment.

LIST OF AFFECTED RATINGS

Duties:

..Issuer: Crown Finance US, Inc. (DIP)

….Senior Secured Super Priority Term Loan, Awarded B1

Outlook Actions:

..Issuer: Crown Finance US, Inc. (DIP)

….Outlook, Assigned No Outlook

MAIN METHODOLOGY

The methodologies used in this rating were business and consumer services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424and Debtor-in-Possession Lending published in June 2018 and available at https://ratings.moodys.com/api/rmc-documents/54004. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

This rating is assigned on an ad-hoc basis and will be retired as soon as possible, prior to which it will be monitored.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

REFERENCES/QUOTES

[1] Interim Order United States Bankruptcy Court Southern District of Texas 08-Sep-2022

[2] London Stock Exchange 09-Sep-2022

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Fiona Knox
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service Ltd.
A square of Canada
Canary Wharf
London, E14 5FA
UK
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

mario santangelo
Associate General Manager
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Investors Service Ltd.
A square of Canada
Canary Wharf
London, E14 5FA
UK
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

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