AMC Theatres Credit Rating Downgraded Again by S&P Global, With Default Imminent

S&P Global Ratings on Friday downgraded movie theater chain AMC Entertainment’s credit rating to CCC- from CCC+, putting the chain’s borrowing power in junk territory and suggesting it’s at risk of imminent default with little prospect for recovery.

Exhibitors have continued to struggle as Hollywood studios haven’t been able to entice audiences to flock back to cinemas amid the ongoing novel coronavirus pandemic. Warner Bros., Universal and Disney recently pushed the releases of expected fall blockbusters to next year following a tepid turnout for Warner Bros.’ “Tenet,” which many hoped would help reignite the box office.

Approximately 70% of theaters nationwide have reopened since the end of August, but a combination of a lack of several strong titles and fears of contracting COVID-19 has kept audiences away. “Tenet” led the September box office charts this past month with just $41.2 million, and overall business for the month dropped 78% year-over-year.

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“The ongoing coronavirus pandemic will continue to have an impact on theater attendance and consumer behavior into 2021,” S&P analysts wrote. “We anticipate that global cinema attendance will recover much more slowly in the fourth quarter of 2020 than we had previously expected and now expect the impact of COVID-19 on theater attendance to last well into 2021.

“Given our expectations for a high rate of cash burn, we believe the company will run out of liquidity within the next six months unless it is able to raise additional capital, which we view as unlikely, or attendance levels materially improve,” they continued.

The big concern that led to S&P’s negative outlook for AMC is the chain’s liquidity, which has been a talking point since the beginning of the shutdown.

S&P analysts said that even despite AMC’s recent cash raise — the agency subsequently raised the chain’s credit rating in August — and debt restructuring, they don’t believe “the company will have sufficient liquidity to cover its fixed charges over the next six months.”

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As of August 31 AMC said it had a cash balance of $507.9 million, including $37.5 million in proceeds from the sale of its Baltics theaters. The theater chain has also indicated that its cash burn accelerated to roughly $115.2 million in the months of July and August due to the cost of re-opening theaters and it expects September to be the same.

“We believe a liquidity crisis is all but inevitable even if the company were to fully re-open all of its theaters,” S&P analysts wrote. “We think cinema attendance will remain constrained by consumers’ health and safety concerns and social-distancing measures until an effective treatment or vaccine becomes widely available — which could be around mid-2021 — and will not recover to 2019 levels until 2022.

“In addition, any potential second wave of the virus this winter could force AMC to reclose its theaters,” they continued. “Although unlikely, we could raise the rating if AMC were able to secure additional liquidity without further burdening its capital structure and its cash generation improved following a stronger recovery in cinema attendance and operating performance than we currently expect.”

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