NEW YORK — Can a whole industry declare bankruptcy?
The down-at-the-heels exhibition biz is doing its best. Edwards Theatres said Wednesday it filed for Chapter 11. Carmike Cinemas did the same a few weeks ago, and Regal Cinemas, the nation’s biggest chain, gave notice it may not be far behind.
Meanwhile, United Artists is trying to hash out a deal with its bankers and bondholders in lieu of an outright bankruptcy filing.
Newport Beach, Calif.-based Edwards is one of the largest theater operators in the area and ranks 10th-largest nationwide. CEO W. James Edwards III said that “after reviewing the various alternatives available, we concluded that utilizing the Chapter 11 process to complete our restructuring is in the best long-term interests of the company.”
The bankruptcy filing gives Edwards breathing time to restructure its debt, reorganize its operations and strengthen its balance sheet. It also gives the company carte blanche to reject any leases, which means it can shut down older, loss-making theaters faster. In fact, Edwards closed four Southern California locations Tuesday night, sources said, none of which had more than 10 screens.
Without those locations, Edwards has 70 theaters with 736 screens. Most locations are in Southern California, primarily in Orange County. Four are in Idaho and three in Houston.
Edwards owes its banking group, led by Bank of America, $215 million, plus some $36 million in trade debt owed mainly to vendors and studios, including Warner Bros., DreamWorks, 20th Century Fox, Universal and Buena Vista.
Exhibs have been hit by surging construction costs in a frenetic round of building over the past several years. Their new state-of-the-art megaplexes have been rapidly draining business from the older theaters, which lack stadium seating, movable armrests, cupholders and other expensive amenities. However, it is often hard for exhibs to get out of those leases.
James Edwards said the filing in U.S. Bankruptcy Court in Santa Ana, Calif., was voluntary and that operations will continue as before. Employees and vendors will be paid and the company “intends to seek court approval to honor policies regarding gift certificates, movie passes and other customer programs.”
Meanwhile, Carmike Cinemas said Wednesday it will be late filing its financial report for the June quarter, citing “difficulties and issues related to appropriate disclosures and representations associated with the filing of the company’s Chapter 11 proceedings.” The New York Stock Exchange suspended trading in Carmike shares several weeks ago and is considering delisting the stock.
A Carmike creditors’ committee was being set up Wednesday afternoon in a Delaware court.
Credit rating drop
Also, Standard & Poor’s lowered exhib AMC Entertainment’s corporate credit rating to triple-C-plus from single-B. The subordinated debt rating was lowered to triple-C-minus from triple-C-plus. The outlook, S&P said, is negative.
The agency cited the red ink that’s drowning most exhibs, along with overbuilding. There are too many screens in the country and no hope of relief on that front for the next 12 to 24 months. But S&P noted that it’s hard to get out of preexisting commitments to build new theaters and AMC may have trouble finding the cash to honor them.
AMC shares closed down 5% at $2.38.
Edwards isn’t publicly traded.