Investors watching the Cineworld (LSE: CINE) share price saw another twist in the tale on Monday (23 November). The cinema giant announced it had secured new loans worth $450m to get it through the Covid-19 pandemic.
Cineworld is the planet’s second-largest cinema chain. The FTSE 250 firm has been particularly badly affected by lockdowns. Its gargantuan debt — recently downgraded, no less — has been covered extensively on The Motley Fool UK. And it has become something of a bellwether for the state of the economy at large.
It has been hit hard because it’s a very large company that’s dependent on the free movement of people to gather in large numbers. The more freedom we have to watch blockbuster films together in person, the more momentum there appears to be in the Cineworld share price.
Cineworld share price boosted
There was one other key piece of information in the announcement that could benefit that share price.
Bosses added they had also agreed bank covenant waivers until 2022. But what exactly does this mean?
Bank covenants are milestones set in place at the time a company gets a loan. If the company’s debt-to-equity ratio, for example, falls below a certain level, the bank is allowed to call in its loan and demand immediate payment.
So news that Cineworld management was able to agree to defer these covenants gives the business some much-needed breathing space.
Closing down
In early October the company said it would shed an incredible 45,000 staff worldwide, including 5,500 workers in the UK and 20,000 in the US. This was in response to global lockdowns and the fact that the business was losing money hand over fist.
The Cineworld share price plummeted over 37% when shares opened on Monday 5 October.
Cineworld says it has based its new earnings expectations on being able to open its locations by May 2021.
Trading in
The Cineworld share price has become a particular favourite of traders (as opposed to investors) because of the immense volatility in the share price day to day.
When there are big swings in the market price of shares, traders betting on short-term outcomes can make much larger gains (and losses).
Anyone who bought into the Cineworld share price at its recent floor of 27p in October would have doubled their money by now. But there are obvious and extreme risks with this kind of move.
What next for Cineworld share price?
The loans and bank updates announced on Monday 23 November have reduced Cineworld’s cash burn to around $60m a month, the chain said.
The company’s dwindling cash pile has been a source of intense speculation in recent months as the business has not been able to bring in any new money with all of its outlets closed.
Original plans to re-open in the US and UK in mid-July were put back to 26 August. That grand reopening, of course, was shelved as Covid-19 infections continued to spike.
At the time, chief executive Mooky Greidinger told the press “we have to be optimistic”. It is this optimism that has remained in very short supply and weighed down the Cineworld share price to date.
