S&P Global Ratings has downgraded the credit rating for exhibition giant Cinemark Holdings over delays in Hollywood tentpoles reaching the local multiplex amid the COVID-19 crisis.
“Theater attendance will likely remain weak and large tentpole releases delayed until there is a viable treatment or vaccine for the coronavirus that allows for the end of social distancing. S&P Global Ratings does not expect this to occur until mid-2021,” the research firm said in a ratings note on Friday.
Cinemark, the third-largest domestic cinema chain behind AMC Theatres and Regal Cinemas, respectively, has had its ratings reduced by one notch to B from B+, with a negative outlook. Unlike Regal parent Cineworld closing all of its U.K. and U.S. locations after the James Bond pic No Time to Die was pushed from Nov. 20 to 2021, Cinemark has committed to keeping its reopened circuit up and running, where local regulations allow.
That’s as Hollywood studios continue to delay their 2020 tentpoles amid the ongoing pandemic.
“We anticipate global cinema attendance will not begin to recover until 2021, which is later than we had previously expected. This is due to the ongoing pandemic, continued delays of film releases by major studios, and the risk that global authorities could impose stricter lockdown measures to limit local resurgences of the virus… In addition, any potential second wave of the virus this winter could force Cinemark to reclose its theaters,” S&P Global said in its commentary.
The bottom line for the ratings agency is cinema chains will be hard-pressed to navigate the pandemic if they do not get access to theatrical releases for tentpoles like Walt Disney’s Black Widow, MGM’s No Time to Die and Warner Bros.’ Dune.
The research firm added Cinemark risks operating with a debt ratio above its 5X downgrade threshold through 2021, and with its borrowings level not likely to come down in 2022 “depending on how much of its considerable cash balance is burned over the next 12 months.”
S&P Global noted that the studios, as they increasingly favor premium VOD and streaming platforms for their small and mid-size movie releases, will leave exhibition giants like Cinemark with less leverage to battle the challenge to the 90-day theatrical window as they had pre-pandemic.
“The (negative) outlook reflects the risk that the coronavirus’ effects may last longer than expected and/or the shift toward direct-to-consumer distribution could accelerate, resulting in a permanent weakening of the exhibitors’ business and Cinemark’s credit metrics,” S&P Global concluded in its report.