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Law360 (April 3, 2020, 12:45 PM EDT) -- Citing the coronavirus' impact on the movie theater industry, luxury seating manufacturer VIP Cinema Holdings Inc. told a Delaware judge Friday that it has ceased operations and vacated its Chapter 11 restructuring plan as it monetizes assets to be distributed to creditors.
During a status conference held via telephone, VIP told U.S. Bankruptcy Judge Mary F. Walrath that, due to the coronavirus crisis' significant impact on movie theaters worldwide, its debt-for-equity restructuring plan was no longer feasible.
"We are truly living in an unprecedented time," said VIP attorney Cristine Pirro Schwarzman of Ropes & Gray LLP.
The company and its directors determined that VIP's business was no longer viable, as the movie theater industry has come to a halt and theaters will not likely open again in the immediate future, Schwarzman said.
Given the economic climate, VIP had no way to secure capital to continue operations and move forward with its restructuring plan so its brass decided to shut down operations and monetize its assets for distribution to creditors, Schwarzman told the judge.
VIP attorney Erin R. Fay of Bayard PA said roughly 310 employees were laid off in late March. VIP is expected back in court later this month as it winds down operations and the remaining administrative matters in its Chapter 11.
Last month, Regal Cinemas Inc. told the court it did not think VIP's debt-for-equity plan was feasible given the coronavirus crisis, and that VIP had not shown it can satisfy conditions of the restructuring plan.
In an objection to confirmation of VIP's Chapter 11 plan, the movie theater chain, which said it holds prepetition unsecured claims against the debtors, asserted that there is "no reasonable likelihood that the reorganization proposed by the plan will be successful."
The plan was proposed "before the current economic and public health crisis developed" and certain "economic and business risks ... have come to fruition" rendering the plan unconfirmable, Regal contended.
"Due to the recent and unfortunate outbreak of a novel coronavirus and resulting spread of COVID-19, many movie theaters have gone dark," Regal said. "While Regal hopes circumstances will return to normal in the very near future, the fact remains that our nation is under a declared emergency with no definite end date."
VIP and four affiliates hit Chapter 11 in February, citing a downturn by large movie theater companies in renovating theaters or building new ones as a reason for the bankruptcy filing. The debtor entities are a wholly owned subsidiary of HIG Cinema Holdings Inc., which along with a foreign subsidiary has not filed its own bankruptcy, according to a first-day declaration.
The luxury seating manufacturer hit Chapter 11 with an agreement in place with the majority of its lenders for a proposed debt-for-equity swap to wipe out much of its roughly $210 million in debt. Under the plan, $178 million of VIP's long-term indebtedness was set to be wiped out, the declaration said.
VIP's debt includes $144.4 million owed on a $165 million first-lien term loan, $20 million owed on a secured revolving credit facility and $45 million owed on a junior secured term loan.
Under the plan, holders of first-lien claims were set to "receive their pro rata share of (a) $60 million of reorganized preferred stock and (b) 10% of the reorganized common stock prior to dilution from the management incentive plan," according to court filings.
VIP is represented by Erin R. Fay, Daniel N. Brogan and Gregory J. Flasser of Bayard PA and Gregg M. Galardi and Cristine Pirro Schwarzman of Ropes & Gray LLP.
The case is In Re: VIP Cinema Holdings et al., case number 1:20-bk-10345, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Alyssa Miller.
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