AMC Entertainment to "Run Out of Liquidity" in 6 Months, Ratings Agency Warns

AMC Theatres cinema

AMC Theatres cinema

S&P Global cited the exhibition giant's cash burn rate for another ratings downgrade as the pandemic's impact on its theaters and consumer behavior continues.

Debt ratings agency S&P Global Ratings has reduced AMC Entertainment Holding's credit ratings on liquidity concerns as the impact on the mega-exhibitor's theaters takes a toll on its available cash on hand.

"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," the agency said.

On Sept. 24, AMC said it would look to raise more fresh cash, in part for debt refinancings and repayments amid the coronavirus pandemic, via an equity distribution agreement for the potential issue of 15 million shares agreed with Wall Street banks.

That move came as the exhibition giant looks to continue reopening its U.S. theater circuit and survive the pandemic after a debt restructuring.

The debt ratings agency downgraded AMC's credit rating to CCC-, from CCC+, on weak liquidity, and with a negative outlook. S&P Global Ratings, in March 2020 as the pandemic first took hold, signaled it would review and potentially downgrade AMC's ratings amid the COVID-19 crisis.

In July, AMC completed a debt restructuring agreement with its bondholders that included $200 million in fresh cash and the Silver Lake Group purchasing $100 million in new senior notes. More recently, the cinema chain said it raised $77 million by selling nine theaters in Europe's Baltic region.

In its latest report on the exhibition giant, S&P Global argued AMC "continues to struggle operationally and financially because U.S. attendance remains weak after reopening, additional major theatrical releases are delayed and its cash burn might accelerate now that its theaters are open."

S&P Global said continuing reduced capacity at theaters and wary consumers continuing to embrace streaming platforms was likely to persist into 2021.

"The negative outlook reflects our view that a default, distressed exchange, or redemption appears to be inevitable within six months, absent unanticipated significantly favorable changes in the issuer's circumstances," the agency added.

On Oct. 1, with film production slowly restarting and cinemas reopening amid the COVID-19 pandemic, Credit Suisse analyst Meghan Durkin said Hollywood's content pipeline looked "increasingly risky" as a question mark remained over how comfortable filmgoers will be to return to their local multiplex, given the pandemic's current trajectory.

And on Wednesday, dozens of influential filmmakers joined the National Association of Theatre Owners, the Directors Guild of America and the Motion Picture Association in calling on Congress to provide assistance to struggling theater owners impacted by the ongoing COVID-19 crisis. They warned that many cinemas may not otherwise survive.

Most exhibition companies — or 93 percent — weathered losses of 75 percent in the second quarter of 2020 after moviegoing came to an unprecedented stop in mid-March. While more than half of theaters are now reopened, Hollywood continues to delay its major fall releases out of concern that many moviegoers aren't yet ready to return.