What happened
Last week, hopes that movie theaters could soon return to the business of watching movies in theaters helped lift shares from first AMC Entertainment (NYSE: AMC) and then its rival of the cinema chain Cinemark Holdings (NYSE: CNK) as well as.
Today, investors seem to have second thoughts about the fact that, with Cinemark shares falling as much as 12% (and staying there), a UK rival (and owner of Regal Cinemas in the US) Cineworld (OTC: CNNW.F) (LSE: CINE) dropped almost 12% before handball, and AMC still drops 5.3% in 2:35 pm EDT trading.
Image Source: Getty Images.
So what
What did investors worry about today? Now, yesterday, Cinemark announced that although its own grand opening has already begun, to keep its doors open and lights on, while moviegoers are slowly submitting to their seats, it should sell $ 400 million worth of “convertible senior notes” “(that is, debt that can be forfeited if certain conditions are met). Investors in Cineworld and AMC, meanwhile, may be wondering whether, where exactly Cinemark is leading, their own shares will be forced to follow as theater chains scramble for cash to tie them up until audiences return to the theater.
For its part, Cinemark says it intends to use the proceeds of this debt offering to pay other debts for “general business purposes” as well as for “convertible note hedge and warrant transactions.”
Well what
All of this sounds very complicated, but here’s what it’s all about:
Cinemark is already a company with $ 3.1 billion more debt than cash on its books, and it adds more debt to its burden. It is engaged in some complicated financial transactions about which few details have been disclosed. The company could completely end up converting its new debt into stock, which will drive these investors out of an as yet undetermined amount of their ownership of the company.
And it does all this yet without having proved that moviegoers will return to their theaters under threat of infection from an ongoing coronavirus pandemic. If all that nervous investors give no excuse to think about selling movie shows, I do not know what that would be.
