Cineplex lauds ‘successful’ convertibles sale; proceeds pay bank debt

By Devika Patel

Knoxville, Tenn., Aug. 14 – Cineplex Inc. said its July C$275 million sale of convertibles was “successful,” with its proceeds going to pay down bank debt.

Management is now comfortable with the company’s financial position and as of Friday the company had reopened 80% of its theaters.

“We took meaningful actions to provide further financial stability throughout the recovery period and to ensure that our long-term liquidity needs were met,” president and chief executive officer Ellis Jacob said on the company’s second quarter ended June 30 earnings conference call on Friday.

“This included obtaining relief from certain financial covenants under our credit facility and securing additional financing in the form of convertible unsecured subordinated debentures, issued subsequent to quarter end,” Jacob said.

The “successful” convertibles sale, with the greenshoe fully exercised, satisfied the condition under the company’s credit agreement amendment that Cineplex negotiated on June 29, which required the company to raise C$250 million of new financing by Aug. 31, of which C$100 million would be used to make a permanent repayment of the credit facilities.

“The convertible debenture offering was announced on July 7,” chief financial officer Gord Nelson said on the call.

“[It] was successful, with the full over-allotment option being exercised.

“Total proceeds, net of commissions, was approximately $305 million and was used to pay down the existing credit facility, with $100 million being a permanent paydown,” Nelson said.

Covid-19 had a significant effect on the second quarter’s results, with locations closed for almost all of the period.

“Like so many other businesses in Canada and around the world, as a direct result of the global pandemic, our locations were closed for almost the entire second quarter, only beginning to reopen in select markets during the last few weeks of June where it was deemed safe to do so,” Jacob said.

“Our second quarter results were severely impacted by Covid-19, resulting in substantial decreases when compared to last year.

“Beginning in mid-March and continuing throughout the second quarter, we remained laser-focused on significantly reducing operating costs and capital expenditures,” Jacob said.

“During the quarter, we significantly reduced operating costs and capital expenditures and worked with our landlords to abate and defer rents,” Jacob stated in a Friday press release.

Despite the hardships of the pandemic, management is now pleased with the company’s financial position and the company has reopened most of its theaters.

“We have taken a number of significant steps during Q2 to manage our costs and improve our liquidity position and balance sheet,” Nelson said.

“Despite the current environment, we feel very comfortable with where we have positioned the company today,” Nelson said.

“I’m pleased to share that, as of today, we have reopened over 80% of our theater circuit,” Jacob said.

On July 8, Cineplex priced C$275 million of 5.75% five-year convertible subordinated debentures with a greenshoe of C$41.25 million.

On July 20, underwriters for the sale exercised the over-allotment option in full, increasing the issue to C$316.25 million.

The convertibles have a conversion price of C$10.94 and a conversion ratio of 91.4077 shares per note.

The notes are non-callable until Sept. 30, 2023 and then subject to a 125% hurdle.

Scotiabank led the syndicate of underwriters that included BMO Capital Markets, RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and TD Securities Inc. for the offering, which was marketed via short-form prospectus in each of the provinces in Canada.

Net proceeds were earmarked for repaying debt under the company’s credit facilities.

Cineplex is a Toronto-based entertainment and media company.

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