The Cineworld Group plc (LON: CINE) share price plunged by 30.8% after news emerged that its London-listed holding company was planning to file for administration as part of the broader restructuring process that will see the company exit its Chapter 11 bankruptcy soon.
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The move to appoint a London-based administrator is crucial for the company as the administrator will facilitate the company's ownership transfer to its lenders and away from retail investors who are set to be wiped out once the restructuring efforts are complete.
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According to the report filed by Sky News, Cineworld is set to announce the decision in the next few days, with the company choosing AlixPartners to act as administrator. The move will not impact the operations of its UK locations since it will only affect the holding company.
Cineworld has 128 movie theatres in the United Kingdom and employs thousands of personnel to keep its sites running well. The restructuring plan the company and its creditors agreed to will reduce its debt by $4.5 billion while allowing for an $800 million rights issue.
Retail investors will be wiped out once the restructuring plan is fully implemented, which explains today’s decline in Cineworld’s share price. Still, the financial restructuring will leave the company in a more robust financial situation than it currently is.
Furthermore, the report indicates that the lenders, who shall now be the company's majority shareholders, will be recruiting a new board, including a new CEO, meaning that the Greidinger brothers, who currently run the company, would have to relinquish their positions.
However, Cineworld has yet to confirm the reports and declined to comment when Sky News reached out to the company before publishing the report. We are in the final stages of Cineworld's exiting bankruptcy, and it will be interesting to see how its share price performs at this crucial juncture.
Meanwhile, as I have said before, buying and holding Cineworld shares now does not make sense, given that retail investors will be wiped out when the bankruptcy process ends. The intelligent decision would be to wait for the company to exit bankruptcy and buy the shares.
*This is not investment advice.
Cineworld share price.
The Cineworld share price plunged 30.77% to trade at 0.63p, from Tuesday’s closing price of 0.91p.
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