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A US cinema chain that is 24.5 per cent owned by Village Roadshow (ASX: VRL) is potentially facing bankruptcy.
The American cinema chain iPic Entertainment, announced on Friday US time that it would be unable to repay a $10.1 million interest payment to the Employees Retirement System of Alabama (ERSA) and the Teachers Retirement System of Alabama (TRSA).
The US company, listed on the NASDAQ as IPIC, actually has around $204 million of outstanding indebtedness under its credit facility to TRSA and ERSA.
At the quarter ended March 31, 2019, iPic expected to draw down a substantial portion of the remaining principal balance of the credit facility to make the interest payment, but the TRSA and ERSA did not make additional funds available to iPic under the credit facility.
While the two lenders have not yet made a declaration of default for the company, in the event that they do the outstanding $204 million indebtedness will become immediately due and payable.
If the company does not have adequate cash on hand to repay the debt, meaning TRSA and ERSA could foreclose upon the property pledged to secure the credit facility which includes substantially all of iPic's assets.
In other words, the company expects it may have to declare Chapter 11 bankruptcy.
In addition to that $204 million of secured indebtedness the company also has unsecured debts. The group says declaring bankruptcy is unlikely to result in recovery for unsecured creditors.
Back in Australia, entertainment group Village Roadshow has more or less pulled away from iPic.
The company responded to iPic's bad news this morning, saying it carries its investment in iPic at nil in its accounts and it has a contingent liability of US$5.6 million relating to iPic.
The Australian company will make a payment of US$5.6 million to eliminate that liability.
"There is no further recourse to the VRL group in relation to iPic," says Village Roadshow.
Village Roadshow delivered softened earnings results at the beginning of 2019, with its film distribution arm contributing just $8.2 million in earnings.
The company says it was attempting to combat the "Netflix effect" that is causing that division to suffer.
The entertainment group's theme parks division was recovering at the beginning of the year too, earnings increased from $29.2 million in 1H18 to $39.7 million in 1H19.
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