Just in time for a sh*tty holiday movie season with subpar fare like “Vice” and “Aquaman” hitting theaters, Frank Theatres Bayonne/South Cove LLC and 23 affiliated companies filed for bankruptcy in the District of New Jersey. Under brand names Frank Theatres, CineBowl & Grille and Revolutions, the company owns and operates 9 pure play movie theaters, 3 family entertainment complexes (i.e., bowling, arcade, etc.), and 3 combination — movie theater AND family entertainment — locations. Despite a robust year for Hollywood on the heals of highly successful-cum-intellectually-retarding movies like Avengers:Infinity War and Venom, the company’s revenues and resultant losses over the past three years paint a clear picture as to why this company is in bankruptcy court. From 2016 through 2018, revenues have declined from approximately $65mm to $56mm to $40mm, respectively. Losses, in turn, come in at $10.2mm, $11.3mm and $9.7mm. These are brutal numbers.
Of course, part of the issue here is that, in certain cases, this chain knew nothing of first run screenings of the aforementioned hits. Per the company, the expansion beyond the core theater business into the broader entertainment space proved disastrous, marked by poor locations, unprofitable leases, cost overruns, delayed openings, and ineffective management. Consequently, the company started deploying theater revenue like an ATM to service the flailing entertainment business. Except, there was one giant problem with all of this:
While operating cash and third-party loans were being used to support the liquidity need caused by the over-budget, past-deadline, and unprofitable new locations, the remainder of the existing locations also steadily declined in general admissions and total revenues as preventative maintenance, standard course refreshes, and local marketing initiatives were reduced or abandoned altogether. In addition, landlords and critical vendors were not paid or were materially aged beyond their standard payment terms. These poor management decisions were made in most cases without the knowledge or consent of the Debtors’ capital providers.
In some instances, the Company was evicted, locked out of its theater locations, and/or box office studios refused to allow the theaters to exhibit key first run movies which further exacerbated the decline in financial performance.
Like we said: they knew nothing of first run screenings. Not that you’d want to see them at these theaters anyway:
Under Debtors’ prior management (pre-September 2017), the physical state of many locations was severely neglected. Much needed capital improvements were not made into maintenance or upgrades of many locations. As a result, over time, the locations became dirty and in disrepair, which ultimately deterred business and resulted in a decrease in revenue.
Now if that doesn’t sound like an oh-so-lovely-holiday-moviegoing experience we don’t know what does. Usually a rabies shot isn’t a prerequisite to seeing a new flick.
Given all of this (and alleged mismanagement which is now the subject of ongoing litigation), the company was ill-suited to compete (deep voice) in a world where the industry shifted to the “premium” movie-going experience. After all, why go to the movies at all if you can just sit at home and watch Sandra Bullock evade zombies on Netflix. The only reason is, thanks to 4DX and the like, to feel that punch to the face from Dwayne Johnson or the wind in your hair when Tom Cruise races down the streets of London on a motorcycle. Except, this company didn’t have any of that new razzle dazzle. They did have the prices though:
While the condition of the Company’s locations deteriorated, the movie theater industry in general trended toward an enhanced movie going experience, including luxury recliners and a more “premium” experience. At the same time, the Debtors’ ticket and concession prices continued to rise in line with, or over, the industry average (which further discouraged customers).
And so now bankruptcy. The company has a restructuring support agreement that includes participation from both its first lien and second lien lenders. The former, Elm Park Capital Management LLC, will have $20mm of their debt reinstated (which may included up to $5mm in DIP financing). The latter, Seacoast Capital Partners III LP, will reinstate $2.5mm to be paid with 25% of net cash proceeds from the sale/monetization of the reorganized assets (once Elm Park has received $20mm on account of their claims). The balance of secured debt will convert into equity. General unsecured creditors are likely to donut.
The company intends to emerge from bankruptcy with only the most profitable locations intact.
Jurisdiction: D. of New Jersey (Judge Meisel)
Capital Structure: $31mm first lien debt (Elm Park Capital Management LLC), $8mm second lien debt (Seacoast Capital Partners III LP)
Legal: Lowenstein Sandler LLP (Kenneth Rosen, Joseph DiPasquale, Michael Papandrea, Eric Chafetz)
Financial Advisor: Moss Adams LLP & Paragon Entertainment Holdings LLC
Claims Agent: Prime Clerk LLC
Other Parties in Interest:
First Lien & DIP Lender: Elm Park Capital Management
Second Lien Lender: Seacost Capital Partners III LP
Benefit Street Partners LLC