According to a Bloomberg article, Cineplex (TSX: CGX) is receiving a positive reception for a second-lien secured bond offering:
The company plans to issue C$250 million ($196.5 million) of second-lien secured senior notes due 2026 to yield 7.5% to 7.75%, according to people familiar with the matter. That compares with preliminary discussions with investors yesterday for 8% to 8.25%, said the people, who asked not to be named before the deal is completed. Bookrunners had gathered around C$1 billion in preliminary indications of interest as of Thursday.
Even before COVID-19, the only thing the business had going for it was near-monopoly status for in-person cinema. Otherwise, it is a financial mess of lease liabilities and an overall market that continues to be supplanted by Netflix and other content providers.
When reading Note 16 of their last audited financial statements, they have CAD$506 million already outstanding in first-lien term and revolving facilities (and Cineplex received a covenant relaxation until the end of 2021 for this facility). In a CCAA arrangement, I would suspect this tranche of debt would get mostly everything. Perhaps there is more than half a billion in franchise value in a bankruptcy sale, but even then, who would want 750bps in compensation?
Good on Cineplex management for striking while the iron is hot – I would be doing the same, and would try to up-size the offering while I’m at it. I guess in a topsy-turvy world where huge entities are throwing away capital into digital beanie babies, it makes sense. I was busy pooh-poohing the convertible debt offering (TSX: CGX.DB.B), which is now trading at about 30 cents over par value, so what do I know? Nothing.