Alamo Drafthouse Cinema did everything it could to resist the COVID-19 pandemic. It hit most of the staff, cut the salaries of those left behind, rented out theaters for private events, stopped expensive development projects, relied on its merchandising business to keep revenue in check, and launched an on-demand movie service.
In the end, it was not enough. The company – the largest privately owned theater chain in the United States – filed for bankruptcy protection Wednesday morning.
Alamo Drafthouse joins Studio Movie Grill and Cinemex, two other major theater chains that also found they could not survive the prolonged shutdown and absence of new releases without bankruptcy protection.
According to a court statement filed in Delaware, Alamo Drafthouse was no longer able to service approximately $ 1
“By the end of 2020, it became clear to debtors that they needed immediate relief from their overwhelming debt burden, as operational corrections were not sufficient to overcome the impact of COVID-19 and the industry headwinds,” Vonderahe said.
Alamo Drafthouse had borrowed the $ 105 million from Bank of America and several other banks in June 2018. The company is a leader in dining room development and had a pretty good year in 2019, surpassing the exhibition industry by 5%. According to Vonderahe, it entered 2020 in a strong liquidity position.
But the pandemic took its toll. Even now, with government restrictions largely lifted around the country, only six of the 18 company-owned locations are open and there is only about 20% of capacity.
Alamo Drafthouse tried 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 operations. Instead, Altamont Capital – the owner of 40% of the company’s equity – brought 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 with Altamont and Fortress.
League founded the theater chain in 1997 in Austin, Texas and grew it into a franchise that has about 40 locations. The company attracted an affectionate sequel with its food and beverage service (which includes movie-themed cocktails), the special events it hosts in cult or blockbuster movies, and its strictly enforced “no talking” rule.
Theaters around the country were closed for several months by 2020, and a planned reopening last summer could not bring customers into effect again before a new wave of the virus happened 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, concluded in early January, provided the company with an additional $ 4 million in runway and allowed it to continue to seek flexibility from some landlords and retailers.
In February, Fortress and Altamont agreed to provide an additional $ 2 million, bringing the total debt to $ 112.7 million. (The company also received a $ 10 million loan from the PPP program.)
However, lenders also made it clear that they could not provide additional capital unless it came with the benefits of bankruptcy. Under the bankruptcy plan, Fortress and Altamont have agreed to provide up to an additional $ 20 million in debtor-in-possession financing with a steep 15% annual interest rate.
If all goes according to plan, Fortress and Altamont will convert their debt into equity in the reorganized company, even though the process is open to rival bids. The theater chain will continue to function. The company currently employs 107 full-time employees and 205 part-time employees.
As vaccines are distributed and cinemas get the green light to reopen in New York City, the sector hopes it can start coming again in the coming months.
“We are very confident that the cinema industry – and especially our theaters – will thrive by the end of 2021,” the League said in a statement.