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Financing

Alamo Drafthouse Cinema declares bankruptcy

The restaurant-theater chain sought Chapter 11 debt protection after the pandemic wiped out the movie business.
Photo courtesy of Alamo Drafthouse Cinema

Alamo Drafthouse Cinema, the hybrid restaurant-movie theater chain that saw much of its business wiped out during the pandemic, declared Chapter 11 bankruptcy on Wednesday and has a deal to sell itself to its lenders.

The chain, which operates 41 locations and is based in Austin, Tex., has nearly $113 million in debt from multiple lenders.

Those lenders, including the private equity group Altamont Capital as well as the hedge fund Fortress Investment Group, have agreed to acquire the company out of bankruptcy. Altamont was part of a consortium of groups that owned the company before the bankruptcy, arising from a 2018 recapitalization.

Alamo also expects to close some of its underperforming locations during bankruptcy and will hold an auction for the company, where potential buyers would have to outbid Altamont and Fortress.

Alamo, founded in 1997 by Tim and Karrie League, had grown to become the largest privately held theater chain in the U.S. It had been able to grow in more recent years even as overall box office receipts declined due to pressure from streaming services such as Netflix. It is among a generation of chains that combine restaurants with entertainment.

According to court documents, Alamo entered 2020 “in a strong liquidity position.”

The COVID-19 pandemic changed that. Alamo closed its theaters in March of last year and furloughed about 80% of its staff and reduced pay for workers at the corporate and theater levels and also was able to defer rent and paused new developments.

Alamo generated some revenue through a merchandising arm and added private screenings and a video-on-demand platform, yet with few films being released since the pandemic, demand dwindled. A number of theater chains struggled—Studio Movie Grill filed for bankruptcy last year, while the more traditional theater chain AMC took steps to prevent its own filing.

Currently, six of its 18 company-operated theaters are operating at 50% capacity—though they’re generating just 20% of typical box office sales. Meanwhile, 11 of 23 franchisee-owned theaters are operating with reduced royalty payments. “As the national and local effects of the COVID-19 pandemic became the new normal, revenue growth became impossible, and the company’s liquidity became seriously compromised by summer 2020,” CFO Matthew Vonderahe said in a court filing.

Alamo hired investment bankers last year to evaluate its cost structure, but soon noted that “operational fixes were not enough to overcome the impact of COVID-19 and industry headwinds.” Altamont and Fortress agreed to acquire the company’s debt in a restructuring agreement. That deal subsequently led to the bankruptcy filing and the stalking horse sale agreement.

Tim League will remain involved in the company after the bankruptcy filing and noted in a statement that the environment for Alamo should improve as people are vaccinated and more movies are released. “Because of the increase in vaccination availability, a very exciting slate of new releases and pent-up audience demand, we’re extremely confident that by the end of 2021, the cinema industry—and our theaters specifically—will be thriving,” League said in a statement.

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