Alamo Drafthouse Cinema did everything possible to weather the COVID-19 pandemic. It laid off most of its staff, cut pay for those who stayed, rented cinemas for private events, halted costly development projects, relied on its merchandising business to maintain revenue, and launched a movie-on-demand service.
In the end, it was not enough. The company, the largest private theater chain in the United States, filed for bankruptcy Wednesday morning.
Alamo Drafthouse joins Studio Movie Grill and Cinemex, two other major theater chains that also found they couldn’t survive the lengthy shutdown and absence of new releases without bankruptcy protection.
According to a court statement filed in Delaware, the Alamo Drafthouse could no longer pay about $ 105 million in long-term debt.
“By the end of 2020, it was clear to Debtors that they needed immediate relief from the overwhelming debt burden, as operational corrections were not enough to overcome the impact of COVID-19 and the industry headwinds,” it stated Vonderahe.
Alamo Drafthouse had borrowed the $ 105 million from Bank of America and several other banks in June 2018. The company is a leader in the dinner theater trend and had a pretty good year in 2019, outperforming the exhibition industry. by 5%. According to Vonderahe, it entered 2020 with a strong liquidity position.
But the pandemic took its toll. Even now, with government restrictions largely removed across the country, only six of the 18 company-owned locations are open, and the business is only about 20% full.
Alamo Drafthouse sought 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 capital necessary to continue operating. So instead, Altamont Capital, which owns 40% of the company’s share capital, brought in Fortress Investment Group to help buy the banks’ debt.
Tim League, the founder of the Alamo Drafthouse, and Dave Kennedy, a longtime co-owner and board member, remain involved as minority partners with Altamont and Fortress.
League founded the chain of cinemas in 1997 in Austin, Texas, turning it into a franchise that has approximately 40 locations. The company attracted a devoted following with its food and beverage service (which includes movie-themed cocktails), the special events it hosts tied to cult or blockbuster movies, and its strict “no talking” rule.
Cinemas across the country were closed for months in 2020 and a planned reopening last summer failed to get customers back in effect before another wave of the virus struck in the fall and winter.
In August, Alamo turned to Houlihan Lokey to explore a possible sale of the company and test interest in the market.
The deal with Fortress, consummated in early January, gave the company another $ 4 million of gateway and allowed it to continue to seek flexibility from some commercial owners and vendors.
In February, Fortress and Altamont agreed to provide another $ 2 million, bringing total debt to $ 112.7 million. (The company also obtained a $ 10 million loan from the PPP program.)
However, the lenders also made it clear that they could not provide more capital unless it came with the benefits of bankruptcy. Under the bankruptcy plan, Fortress and Altamont agreed to provide up to an additional $ 20 million in financing for the debtor in possession, at an 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 rival offers. The chain of cinemas will continue to operate. The firm currently employs 107 full-time and 205 part-time workers.
With vaccines released and theaters getting the green light to reopen in New York City, the industry hopes it can begin to recover in the coming months.
“We are extremely confident that by the end of 2021, the film industry, and our cinemas specifically, will be thriving,” League said in a statement.