Alamo Drafthouse Cinema did everything it could to resist the COVID-19 pandemic. She freed most of the team, cut pay for those who stayed, rented cinemas for private events, stopped expensive development projects, relied on her merchandising business to keep revenue coming in, and launched an on-demand movie service.
In the end, it was not enough. The company – the largest private network of theaters in the United States – filed for bankruptcy on Wednesday morning.
Alamo Drafthouse joins Studio Movie Grill and Cinemex, two other sizeable movie chains that also found they could not survive the prolonged shutdown and the absence of new releases without bankruptcy protection.
According to a Delaware court filing, Alamo Drafthouse was no longer able to pay about $ 105 million in long-term debt.
“At the end of 2020, it became clear to Debtors that they needed immediate relief from their huge debt burden, as operational corrections were not enough to overcome the impact of COVID-19 and the headwinds of the industry,” said Vonderahe .
Alamo Drafthouse had borrowed $ 105 million from Bank of America and several other banks in June 2018. The company is a leader in the dining theater trend and had a pretty good year in 2019, overtaking 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 lifted across the country, only six of the company’s 18 locations are open, and business there is only about 20% of capacity.
Alamo Drafthouse sought to renegotiate its debt with Bank of America and the other banks, but found that they were unable to reach an agreement that would provide the capital needed to continue operating. So, instead, Altamont Capital – which holds 40% of the company’s equity – hired the Fortress Investment Group to help buy the banks’ debt.
Tim League, the founder of Alamo Drafthouse, and Dave Kennedy, a former co-owner and board member, remain involved as minority partners with Altamont and Fortress.
League founded the theater chain in 1997 in Austin, Texas, turning it into a franchise that has about 40 locations. The company has attracted devoted followers with its food and beverage service (which includes movie-themed cocktails), the special events it hosts linked to cult or blockbuster films, and its strictly “no-talk” rule.
Theaters across the country were closed for months in 2020 and a planned reopening last summer failed to bring customers back by force before another wave of the virus hit in the fall and winter.
In August, Alamo hired Houlihan Lokey to explore a possible sale of the company and test interest in the market.
The deal with Fortress, concluded in early January, gave the company another $ 4 million on track and allowed it to continue to seek flexibility from some commercial owners and sellers.
In February, Fortress and Altamont agreed to provide an additional $ 2 million, bringing the total debt to $ 112.7 million. (The company also obtained a $ 10 million loan from the PPP program.)
However, creditors also made it clear that they could not provide any additional capital unless it came with the bankruptcy benefits. According to the bankruptcy plan, Fortress and Altamont have agreed to provide up to an additional $ 20 million in financing from the borrower in possession, with a high annual interest rate of 15%.
If everything goes according to plan, Fortress and Altamont will convert their debts into shares in the reorganized company, although the process is open to rival bids. The theater network will continue to function. The company currently employs 107 full-time and 205 part-time workers.
With vaccines being distributed and movie theaters getting the green light to reopen in New York City, the industry hopes it can start to recover in the coming months.
“We are extremely confident that by the end of 2021, the film industry – and specifically our cinemas – will be thriving,” said League in a statement.