AMC Theatres Credit Rating Downgraded Over "Distressed" Bond Swap

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AMC Entertainment

"We would consider the completion of the proposed exchange as a tantamount to a default," S&P Global Ratings said in an investor note.

Debt ratings agency S&P Global Ratings on Wednesday again reduced AMC Entertainment's credit rating after the exhibition giant unveiled plans for a debt swap for additional financial breathing room.

"We view the proposed transaction as distressed," the research firm said in an investors note. AMC announced it was launching a debt exchange offer that would see subordinated bondholders accept cuts of up to half of the $2.3 billion full face value on the existing debt.

"We would consider the completion of the proposed exchange as a tantamount to a default because noteholders would receive less than the original par amount of the notes," S&P Global added. The credit agency lowered its debt rating for AMC to CC, "with negative implications because we would lower the ratings to 'D' if the proposed exchange is completed."

The agency in early April downgraded AMC's credit rating to CCC-, from B, with a negative outlook. And S&P Global Ratings on March 16 first indicated it would review AMC's ratings amid the coronavirus pandemic for a potential downgrade.

AMC also warned on Wednesday that there was "substantial doubt" about its ability to "continue as a going concern for a reasonable period of time." The "going concern" phrase is a warning that a company could eventually have to file for bankruptcy and go out of business.

Exhibitors have been hit hard by the pandemic as they receive no revenue during the pandemic-era shutdown and have high fixed costs. Analysts have discussed a possible bankruptcy filing from AMC should the current theater closures, along with its cash burn, persist well into the summer.