AMC Theatres' Credit Rating Downgraded Over "Distressed" Debt Swap

AMC Entertainment movie theatre- Getty - H 2020
AFP PHOTO/Frederic J. BROWN

S&P Global said the mega-circuit's recent debt restructuring with bondholders was "tantamount to a default."

Debt ratings agency S&P Global Ratings has reduced AMC Entertainment's credit ratings due to concerns over its new debt deal with bondholders.

The research firm downgraded AMC's credit rating to SD (selective default) from CC. AMC recently unveiled a debt restructuring agreement with its bondholders that includes $200 million in fresh cash and the Silver Lake Group purchasing $100 million in new senior notes.

The $200 million was made available through a rights offering of new subordinated debt to allow holders of AMC's existing subordinated notes to exchange their securities at a discount for new debt to be issued by the company. The debt exchange produced a lower overall debt balance for AMC so it can sustain its business amid theater closures brought about by the coronavirus pandemic.

AMC has postponed the reopening of its domestic cinemas from the end of July to mid- to late August due to the continued novel coronavirus pandemic.

But S&P Global turned thumbs down on AMC's overall debt restructuring. "We view this transaction as distressed and tantamount to a default," the research firm said.

To complete the debt exchange, S&P Global argued AMC issued $1.46 billion of new second-lien secured notes due 2026, and "we estimate the lenders are receiving roughly 70 percent to 75 percent par value."

"Because of this, we view the transaction as a distressed exchange and tantamount to a default on the subordinated notes," the research firm added. AMC has faced Wall Street speculation that it may not survive the novel coronavirus pandemic and a resulting recession.

The latest debt restructuring at AMC follows the company raising $500 million in new debt to bolster its balance sheet liquidity in April as it generated no revenue during its circuit shutdown.