Cineplex to Raise $200 Million in Cash After Cineworld Merger Called Off

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Cineplex Cinemas

The proceeds from the offering of convertible debentures will be used to shore up the Canadian exhibitor's balance sheet.

Canada's Cineplex has launched a $202 million debt-securities issue to shore up its balance sheet after its $2.1 billion takeover by Regal owner Cineworld Group was called off.

On Tuesday, Cineplex unveiled plans for a public offering of unsecured convertible debentures underwritten by a syndicate of Canadian banks. Cineplex said it will use the proceeds of the offering to repay existing debt under its credit facilities, of which $74 millionwill be permanently repaid and the balance will be available for borrowing under the company’s revolving credit facility.

Unlike other debt financing, convertible debt as a loan can be turned into equity at a later date. Early on during the coronavirus pandemic that shut down the circuits of Cineplex and its U.S. exhibition peers, short sellers raised concerns about the Canadian company's debt load as one of the conditions for a merger with Cineworld held that Cineplex had to maintain its debt below $725 million.

On July 6, in response to Cineplex initiating legal action against the former U.K.-based suitor, Cineworld argued it terminated its takeover deal "because Cineplex breached a number of its covenants" and "did not remedy these breaches when given the opportunity to do so."

Cineplex insists its current debt load stands at $489 million. The convertible debentures on offer from Cineplex will mature in September 2025 and have yet to be priced.