Mark Kleinman: Cineworld revamp is a horror show for landlords

Mark Kleinman is Sky News’ City Editor and is the man who gets the City talking in his weekly City A.M. column. This week he tackles Cineworld’s closures, Rolls-Royce’s chief executive and plans to rename Twickenham

Cineworld revamp is a horror show for landlords

Enjoy this week’s Cineworld blockbuster? No, not on the big screen; this one took place in a nondescript London courtroom and has the lame title of ‘convening hearing’. How very un-Hollywood: the initial phase of Cineworld’s showdown with creditors was less all-action than a slowly building drama.

Cineworld wants to close six of its 101 UK sites immediately, with another 30 or so under threat if it cannot secure swingeing rent cuts from landlords.

It is implementing this overhaul through a restructuring plan which allows it to ‘cram down’ creditors. Already, one landlord has given in. The restructuring plan documents show that Aviva Investors, owner of a solitary Cineworld site, has already agreed to a rent reduction and will therefore not be compromised under the plan.

Others, including British Land, have signalled their determination to seek a better outcome by demanding more of the upside from a future recovery in the business’s performance.

Landlords are not in a strong position, however. The structure of Cineworld’s creditor base effectively means that the funds which own it also comprise the largest proportion of its creditors, according to people close to the company.

That means other creditors – including property owners – will be forced to accept the terms of the deal when it is voted on late next month.

It will stick in their throats, of course, but they also have the option of seeking alternative tenants to replace Cineworld. Some are doing just that, and are now holding talks with rival operators. I suspect Cineworld’s UK estate will look significantly diminished in scale this time of year.

In return, its parent company has pledged to invest £35m into its British business to modernise and upgrade it. The estate desperately needs it. Under its debt-laden capital structure as a public company, Cineworld was starved of investment. If you’re looking for a reclining seat at one of its UK multiplexes, for example, look elsewhere.

As tough as it will be for landlords to swallow, this restructuring is a sign that Britain’s biggest cinema operator is in the last-chance saloon. It’s not quite the summer blockbuster its creditors were hoping for.

Rolls chief’s pay deal offers acid test for City

Talk about turbocharging your pay package. Tufan Erginbilgic, the chief executive of Rolls-Royce Holdings, was appointed to the job to a decidedly mixed reaction in the summer of 2022. 

He had little experience in the aerospace industry, grumbled some stakeholders; he had a reputation as an aggressive corporate manager who might not fit Rolls’ fusty culture, said others.

Whatever the objections, Erginbilgic has proven the sceptics well and truly wrong. Rolls was in a precarious position during Covid as global civil aviation ground to a halt, and it was scarcely out of the woods when he replaced Warren East at the helm at the start of last year.

The company’s transformation under his leadership has been remarkable. Its shares are now worth more than five times the level at which his initial incentive stock was granted.

Rolls’ stellar turnaround has left its chief executive sitting on a huge paper windfall, which this newspaper has estimated at approximately £40m. In fact, if Rolls’ stock continues to rise, and given that the payouts won’t vest until 2027 and 2028, it could be worth far more than that.

It presents a key moment for the London market and a litmus test for boards’ ability to withstand the protests of high-pay campaigners.

That’s partly because of the talent drain from public markets into private equity-backed companies, but it’s especially acute now because of the number of businesses contemplating relisting in New York. Executive pay is a major factor in that trend.

If investors and ministers are serious about maintaining London’s public equity markets as a destination for the world’s top corporate talent, they should publicly congratulate Rolls-Royce on its startling turnaround, and underline how relaxed they are about Erginbilgic’s bumper payday.

Twickenham renaming is a whole new ball game for rugby purists

There has been plenty of head-scratching among rugby aficionados since I revealed (despite the Rugby Football Union’s attempts to stall me) the landmark decision to surrender the name of the sport’s most famous venue and rename it Allianz Stadium.

Rugby union’s financial travails are not exactly well-hidden, but the purists argue that abandoning Twickenham altogether is corporate groupthink at its most rapacious.

From a beancounter’s standpoint, the RFU had little choice. I’m told by one source that the deal may generate up to £15m annually – more than the numbers reported elsewhere – which is a significant sum in the context of the governing body’s obligation to fund the national team as well as the grassroots game in England.

The RFU is not in the same fortuitous position as the Football Association, which nevertheless sold associate naming rights to Wembley to EE. But could you imagine the All-England Lawn Tennis Club presiding over a deal to allow its most prestigious stage to be renamed Barclays Centre Court? Me neither.

The RFU’s position, though, is significantly less robust. Since CVC Capital Partners bought into Premiership Rugby, several top-tier clubs have collapsed, and disagreement still rages about the repayment of COVID-era loans from the government.

There have been few signs of rugby union’s finances stabilising since then. It makes more sense to view the German-backed takeover of Twickenham’s identity as an act of commercial desperation than one of cultural vandalism.