Alamo Drafthouse Cinema has done everything in its power to withstand the COVID-19 pandemic. It beat most staff members, slashing the payment of those who remained, renting out theaters for private events, interrupting expensive development projects, relying on its trading industry to bring in the revenue, and launching an on-demand film service.
In the end, it was not enough. The company – the largest private theater chain in the US – applied for bankruptcy protection on Wednesday morning.
Alamo Drafthouse joins Studio Movie Grill and Cinemex, two other major theater chains that also found that they could not survive the prolonged closure and absence of new releases without bankruptcy.
According to a Delaware court statement, Alamo Drafthouse could no longer pay $ 105 million in long-term debt.
“By the end of 2020, it became clear to the Debtors that they needed immediate relief from their overwhelming debt burden, as operating solutions were not enough to overcome the impact of COVID-19 and headwinds,” said Matthew Vonderahe, head of the company, written. financial officer.
Alamo Drafthouse borrowed the $ 105 million from Bank of America and several other banks in June 2018. The company is a leader in the theatrical trend, and had a pretty good year in 2019 and the exhibition industry with 5% surpass. According to Vonderahe, it is in a strong liquidity position by 2020.
But the pandemic has taken its toll. Even now, with government restrictions being largely lifted across the country, only six of the 18 businesses owned by the company are open and there is only about 20% of capacity.
Alamo Drafthouse attempted to renegotiate its debt with Bank of America and the other banks, but found that they could not reach an agreement that would provide the necessary capital to continue working. Instead, Altamont Capital, which owns 40% of the company’s capital, brought in Fortress Investment Group to help buy the debt from the banks.
Tim League, the founder of Alamo Drafthouse, and Dave Kennedy, a longtime co-owner and board member, remain involved as minority partners at Altamont and Fortress.
League founded the theater chain in 1997 in Austin, Texas, and grew it into a franchise with about 40 locations. The company delivered a dedicated speech with its food and beverage service (which includes film-themed cocktails), the special events it offers, linked to cult or instant films, and the strictly applied “no talking” rule.
Theaters across the country were closed for months in 2020 and a planned reopening last summer could not bring customers back into force until a new boom took place in the fall and winter.
In August, Alamo tapped on Houlihan Lokey to investigate a possible sale of the company and test interest in the market.
The agreement with Fortress, which was completed in early January, provided the company with another $ 4 million runway and allowed it to continue to seek flexibility from some landlords and dealers.
In February, Fortress and Altamont agreed to provide another $ 2 million, bringing the total debt to $ 112.7 million. (The company also received a $ 10 million loan from the PPP program.)
However, the lenders also made it clear that they could not provide any further capital unless it brought the benefits of bankruptcy. Under the bankruptcy plan, Fortress and Altamont agreed to provide an additional $ 20 million in debtor-owned financing, with a steep annual interest rate of 15%.
If all goes according to plan, Fortress and Altamont will convert their debt into equity in the reorganized company, although the process is open to competitive bidding. The theater chain will continue to work. The firm currently has 107 full-time and 205 part-time workers.
With the distribution of vaccines and cinemas getting the green light to reopen in New York City, the sector hopes it can begin to recover in the coming months.
“We are very confident that the film industry – and specifically our theaters – will thrive by the end of 2021,” League said in a statement.