AMC Theatres Downgraded Over "Minimal Liquidity Options" as Stock Tumbles

AMC Santa Monica March 17 2020

"We no longer see value in maintaining positions in AMC shares at this point," B. Riley FBR analyst Eric Wold wrote in a note.

With Wall Street judging a Chapter 11 bankruptcy filing for AMC Theatres increasingly likely, B. Riley FBR analyst Eric Wold on Monday recommended investors sell off stock in the exhibition giant.

"We continue to believe that AMC has minimal liquidity options to make it through an extended theatrical shutdown period even with the recently reported decision to no longer pay rent on its theaters," Wold wrote in an investors note as the company, led by CEO Adam Aron, tries to navigate theater closures amid the COVID-19 crisis.

Shares in AMC Entertainment Holdings Inc. were trading mid-afternoon Monday down 52 cents, or 20 percent, to $2.08 on the New York Stock Exchange. AMC, in which Chinese conglomerate Dalian Wanda Group owns a majority voting stake, has been looking for various ways to reduce costs, furloughing all of its 600 corporate employees, including Aron, in late March following the closure of all its cinemas.

Wold cited a recent New York Post story indicating AMC was in talks to hire a bankruptcy law firm. The analyst echoed earlier share price downgrades for AMC Theatres in pointing to a high debt load that made a restructuring of the company's balance sheet a mounting challenge.

"Given a net leverage ratio that already exceeds 6.0x our current 2021 AEBITDA estimate and the relative lack of visibility into a recovery in moviegoing demand, we believe it is unlikely that AMC would be able to secure any additional availability on those credit facilities or that additional debt sources would be made available," Wold wrote.

The analyst added that AMC Theatres' debt woes were only compounded by around $250 million paid in rent each financial quarter to landlords to operate its multiplexes, and the "potential inflexibility" to defer or restructure those rent payments.

B. Riley FBR on March 18 first downgraded its rating on AMC Entertainment shares from 'buy' to 'neutral' as movie theaters were shuttered. Then on April 1, the firm said uncertainty around when those theaters may reopen threatened the company's equity value falling "to zero."

Wold on Monday further downgraded the AMC Entertainment stock to sell and reduced his share price target from $3.50 to 25 cents. "While we were clearly on the wrong side of the trade by maintaining a Buy rating up to the initial downgrade on 3/18, we no longer see value in maintaining positions in AMC shares at this point," he wrote.