National CineMedia rocked by advertising woes, Cineworld bust, gets new 10-day interest payment deferment; what lies ahead

National CineMedia announced today that it has negotiated a second grace period extension for interest payments originally due on February 15th.

A one-month grace period for a payment said to be about $6.6 million ended on March 15, when the company announced that lenders had agreed to an additional 17 days. The major rating agencies Moody’s and S&P Global then declared the film advertising company technically in arrears and raised the prospect of restructuring.

After that period, the company filed with the SEC for an additional 10-day extension — or an extended total capital period from 47 to 57 days — to pay interest on 5.75% senior unsecured notes due in 2026.

It reiterated that it has “sufficient liquidity to pay interest on the Notes” but that “an extension of the grace period [it] Negotiations to proceed with … lenders to [its] debt. At this stage, no agreement has been reached regarding NCM LLC’s debt burden.”

Shares are down 8% to 13 cents today. It has been a penny stock for some time and said it was notified by the Nasdaq last year that it was at risk of being delisted.

Moody’s downgraded its credit profile “reflecting the view that the risk of default is high.”

“A difficult macroeconomic environment, uncertain advertising demand and the recent bankruptcy filing and litigation by NCM’s key exhibitor partner will make it difficult for NCM to grow revenue to a level that supports its current capital structure,” said the agency said. The partner it refers to is Regal Cinemas, whose parent company Cineworld filed for Chapter 11.

S&P lowered its rating from CCC to D, writing last week: “We view the deferred interest payment as a default.” He expects that the company “will start with a judicial or extrajudicial reorganization”.

The company is the largest provider of in-cinema advertising, followed by Screenvision. The two tried to merge in 2014 and should probably get a stronger foothold in the market, but the Justice Department filed a lawsuit to block the deal, and it fell through.

It was hit hard by Covid when cinemas closed, after which advertising on cinema screens picked up at a slower pace, even as it returned to robust levels elsewhere as life resumed. Then two things happened: inflation and rising interest rates led to recession fears last year and advertisers pulled out across the board; and Cineworld, the parent company of National CineMedia’s biggest client and co-owner Regal, filed for bankruptcy in September. Cineworld is closing some shelf cinemas. It’s also trying to end or renegotiate its long-term deal with National CineMedia, and it’s not clear how that will play out. According to Moody’s, Regal accounted for more than 30% of National Cinemedia’s annual network visits before the pandemic.

Cineworld’s lawyers said at a hearing this week that they hope to submit a restructuring plan soon and are set for April 20 to discuss it with the judge.

“It’s pathetic. It’s still a great company, still a viable business. None of the bad things that happened to them were their fault,” said an industry colleague who knows the company.

National CinemaMedia Inc. owns 47.5% of NCM, with the remaining stake split between founders Cinemark (25.4%), Cineworld/Regal (23.6%) and AMC Entertainment (3.5%). The ownership and management structure of and with the largest customers, who also happen to be business competitors, created complexity from the start.

Earlier this month, it entered into retainer agreements and offered payments to CEO Thomas Lesinski, CFO Ronnie Ng and Scott Felenstein, director of sales and marketing.

Analysts generally like the company and see the company improving along with box office gains, but acknowledge challenges and that it has fallen out of favor with investors for obvious reasons. One analyst, Eric Wold of B. Riley, said earlier this month that the company was discontinuing coverage of National CineMedia “due to a reallocation of resources.” Our final rating is Neutral, with a final price target of $0.25.