Courtroom Drama Clouds After Covid-19 Restoration for Regal . Cinema Owners

The company says this scenario will allow it to pass a covenant test in June on its revolving credit. It could also offer it an opportunity to refinance expensive debt accumulated during the pandemic and potentially even seek a listing in the United States to repair its burdensome capital structure.

In contrast, Cineworld said it would fail the covenant test under a “severe but reasonable” scenario of admissions in April and May at 43% of 2019 levels instead. ro, it is exploring additional sources of liquidity.

How realistic is Cineworld’s base case? Including box office spending and popcorn, soda and the like, the company’s revenue jumped to 90% of its 2019 total in October after the new James Bond movie was released, but still was only at 64% in recent February. So far in March, the figure is 86%, thanks to “The Batman”. So everything depends on the unpredictable question of whether upcoming blockbusters will succeed or fail.

CEO and key shareholder Mooky Greidinger is upbeat about the outlook for the second quarter and the blockbuster trilogy’s release: “Doctor Strange in Madness’ Multiverse,” “Top Gun: Maverick” and “Jurassic” World Dominion.” He wouldn’t have used his family business in Israel to take over Cineworld first in the UK and then Regal without an upbeat outlook on life.

In any case, Cineworld stock, which has fallen back to pandemic lows over the past year, is not an easy reopening game for investors. Even if all goes well, it faces a legal case disproportionate to its capital structure.

In December, a Canadian court awarded C$1.23 billion, or about $1 billion, in compensatory damages to Cineplex for lost synergies after the Cineworld ceased takeover. Mr. Greidinger announced the agreement in December 2019, shortly before the pandemic hit, and pulled it out six months later when the scale of the crisis became apparent, citing the “adverse impact in terms of economic impact” material”.

Cineworld is appealing the verdict. Perhaps the case will end up in some sort of settlement: With a market value of less than $700 billion and nearly $5 billion in debt, the company can’t stand the scale of the damage being awarded to what it calls as “unsecured creditor”. However, this process can drag on for years, making the case for buying stocks. Even a much smaller payout can have a big impact on Cineworld’s market value.

It is understandable that investors are reluctant to buy back the company even at today’s share price, or about twice its 2019 profits. Nail-biting courtroom dramas make better movies than investment movies.

Write letter for Stephen Wilmot at stephen.wilmot@wsj.com