How South Florida Attorneys Lifted 1st Movie Theater Out of Covid-19 Bankruptcy
The COVID-19 pandemic created a "unique environment of pressure on all sides" in this bankruptcy case, debtor's counsel said.
Cinemex has become the first cinema chain in the U.S. to emerge with a restructuring plan after filing for Chapter 11 bankruptcy protection in Miami during the COVID-19 pandemic, according lawyers who hatched the deal.
It was a resolution that took creative thinking and compromise, and could offer some lessons for other struggling businesses.
Cinemex Holdings USA Inc. operates more than 40 luxury movie theaters known as “CineBistros,” as they include dine-in meals and waiter service. One of its theaters is in the Brickell City Center shopping mall.
It had been a multimillion-dollar enterprise, until its entire revenue stream was cut off amid mandated shutdowns over COVID-19 concerns.
That put Miami debtors’ attorney Jeffrey Bast of Bast Amron in quite a predicament.
“How could we pay rent on 41 locations where we’re not operating?” Bast said. “That required buy-in from the landlords that there was going to be a light at the end of the tunnel.”
Bast represented Cinemex with colleagues Brett Amron, Jaime Leggett and Patricia Tomasco and lawyers at Quinn Emanuel Urquhart & Sullivan. They teamed with financial advisers at Province to zero in on the company’s largest expense: rent.
It didn’t hurt that the U.S. Bankruptcy Code allows debtors to assume their contracts and leases if economically feasible, or reject them if not. Bast found that gave Cinemex some leverage to negotiate with its multiple landlords, since the alternatives “weren’t really appealing.”
“Nobody wanted to be out there in April or May of this year searching for somebody to come and operate a movie theater in their space. And most movie theaters are in shopping centers and malls, where movie theaters can be the anchor tenant,” Bast said. “This really created a unique environment of pressure on all sides because it was an unprecedented time of uncertainty. Nobody knew, and we still don’t know, exactly what this thing looks like on the other side.”
But while the landlords didn’t want vacant space in a pandemic, they also had their own obligations and creditors to answer to.
Glenn Moses of Miami’s Genovese Joblove & Battista represented several landlords and soon realized “the parties needed to get a little creative with respect to the restructuring.”
“Key to the success of a lot of these restructurings is not only getting an influx of a lot of money, but also it’s important to have agreements with the landlords going forward,” Moses said.
‘Long hours, late nights’
With no legal route for debtors to modify a lease under the bankruptcy code, it all came down to the parties.
Negotiations ensued, and after what Bast described as a series of ”long hours, late nights and weekends,” the majority of landlords agreed to edit the terms of their leases and allow extra time. While the previous leases were fixed dollar amounts, the renegotiated leases will temporarily be based on a percentage of the movie theaters’ revenue, subject to a minimum floor amount.
It was a solution that allowed Cinemex to salvage 32 of its 41 leases by sharing risk and stopped the landlords from losing their tenants.
The case was a poster child for Chapter 11 bankruptcies is the way Bast tells it, as they can’t succeed without consensus, meaning everyone has to be willing to take less than they might be entitled to.
“When it works, it works because the parties are willing to work together and everybody recognizes that society is better off with this company surviving in some form or fashion, even if it’s a smaller, modified version of itself,” Bast said.
Berger Singerman’s Brian Rich represented the unsecured creditor’s committee, which declined to comment.
U.S. Bankruptcy Judge Laurel Isicoff presided over the litigation in the Southern District of Florida.
Moses, counsel to the landlords, called it a significant but challenging case.
“We’re obviously pleased on a host of different levels that the company was able to restructure its obligations and be allowed and able to operate their movie theaters once the world reopens and it’s safe to do so,” Moses said.
Cinemex is slowly reopening its theaters and, fortunately, has a luxury, spacious setup that lends itself to social distancing. But Bast noted it’s going to be just as important for commercial clients to create the impression of cleanliness as it is for them to actually maintain good hygiene, if they want to see large crowds return.
“It’s not enough to be cleaning after the people leave,” Bast said. “I think the customers also need to see that, and that will give them comfort in the visibility of the cleaning process.”
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