Photo showing interior of an Alamo Drafthouse Cinema

Alamo Drafthouse Cinemas, LLC filed for Chapter 11 bankruptcy on March 3, 2021. The popular movie theater and restaurant chain based in Austin, Texas, filed their petition in hopes to reorganize financially after significant revenue loss during the COVID-19 pandemic.

The bankruptcy is part of a sales agreement between Alamo Drafthouse and equity firms Altamont Capital Partners and Fortress Investment Group. Alamo has also agreed to close at least eight locations — including its historic flagship Ritz property in downtown Austin — and permanently stop construction on a theater in Orlando, Florida.

“We are hopeful that our landlord and other vendor partners will work with us to help ensure a successful emergence from bankruptcy and viable future business,” founder Tim League said in a statement to KXAN. League will retain his role as the company’s executive director and is part of the lender group purchasing Alamo’s assets.

Chapter 11 bankruptcy, also known as reorganization bankruptcy, helps debtors restructure their liabilities and assets. It’s one of the most expensive and complicated forms of bankruptcy.

League founded Alamo Drafthouse in 1997 with his wife. The couple projected second-run movies on a homemade screen while offering a full food and drink menu to customers. According to KXAN, the theater became a huge success, developing into a chain and eventually expanding to 41 theaters in 10 states. 

COVID-19 pandemic damaged Drafthouse attendance and revenue 

The COVID-19 pandemic and resulting government shutdowns caused attendance at movie theaters nationwide to drop. According to Alamo’s bankruptcy petition, theaters started losing revenue as states issued stay-at-home orders in spring of 2020. 

By March 25, 2020, every Alamo theater in the country was closed, and the company’s annual film festival, Fantastic Fest (normally held in Austin), was canceled.

In April 2020, according to the petition, Alamo received a Paycheck Protection Program loan from the Small Business Administration. However, the $10 million loan wouldn’t be enough to offset the chain’s growing number of financial challenges.

When theaters reopened later that year, six locations began operating —and continue to operate as of time of reporting — at 50% mandated seating capacity, making it more difficult for Alamo to make up revenue lost when theaters were closed. Meanwhile, the bankruptcy petition notes that film studios were postponing film production and releasing what content they did produce on streaming services, further damaging Alamo’s ability to generate revenue and pay bills.

Contractors went unpaid during theater expansions

As Alamo was attempting to deal with Spring 2020’s financial losses, they also faced mechanics liens from unpaid contractors on their theater expansion projects.

In July 2020, McSweeney Commercial Painting Inc. filed a lien against an Alamo theater in Irving, Texas, for $25,840. In February 2021, AMPTX Electric of El Paso filed a lien against that city’s Alamo theater for $149,883.31 worth of unpaid electrical work and material. 

By the fall of 2020, Alamo theaters could no longer generate enough revenue to stay afloat. According to the petition, the company contracted investment-banking firm Houlihan Lokey Capital Inc. to advise on company cost structure and cash management structure.

Alamo then attempted to negotiate a refinancing plan with its prepetition lenders, Truist Bank, Texas Capital Bank, Bank of America, and Keybank National Association, but the petition states that those negotiations failed.

On Thursday, Alamo released a statement to KXAN, reassuring moviegoers that every open location will continue to show movies.