Cinemark Down On $400M Notes Offering; Street Cautiously Optimistic

Cinemark Holdings (CNK) has announced a private offering of $400 million convertible senior notes due 2025 to qualified institutional buyers.

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Initial purchasers will also receive a 13-day option to purchase up to an additional $60 million of convertible senior notes.

Shares in the movie giant are down 4% in Tuesday’s pre-market trading.

According to CNK, the notes will be senior unsecured obligations of the company and will accrue interest payable semiannually in arrears. They will be convertible at the option of the holders and may be settled, at Cinemark’s choice, in cash, shares or both.

The interest rate, conversion rate and other terms will be determined at the time of pricing.

Cinemark will use the net proceeds to pay the cost of the convertible note hedge transactions as well as for general corporate purposes, including repaying outstanding amounts under the revolving credit line of the senior secured credit facility for Cinemark USA, Inc.

Shares in CNK have now plunged over 60% year-to-date due to Covid-19-related disruptions. However analysts have a cautiously optimistic Moderate Buy consensus on the stock, with a $17 average analyst price target. This indicates shares can regain 29% from current levels.

Speaking for the bulls, Wedbush analyst Michael Pachter reiterated his CNK buy rating on August 4 with a $15 price target. “We have significant concerns about the exhibition industry and the timing of its return to normalcy” the analyst commented, adding that he believes the release slate is overly optimistic, and re-shuttering of theaters presents a real risk to the industry.

However “with that said, we continue to view Cinemark as a well-managed company with the most stable results in the industry, and therefore the best exhibitor to own” he told investors.

According to Pachter, Cinemark has demonstrated that it can withstand closures and/or low utilization well into 2021. “We think that shares of CNK will continue to trade at a discount while the uncertainty remains high as re-opening commences, but we expect shares to normalize to a 7.5x multiple once the industry begins to right-size” the analyst concludes. (See CNK stock analysis on TipRanks).