National CineMedia Gets Credit Rating Downgrade at S&P Global

National CineMedia auditorium - Publicity - H 2020
Courtesy of National CineMedia

The research firm warned that the in-theater advertising firm faces a spiking debt load in 2020 due to prolonged cinema closures amid the coronavirus pandemic.

In-theater advertising firm National CineMedia has been hit with a credit rating downgrade from S&P Global Ratings.

The research firm on Thursday lowered the company's rating to B, from B+. "The negative outlook reflects the uncertainty around the length and the extent of the pandemic's impact on theater attendance and the potential that a longer than expected shutdown, a slower than expected recovery in theater attendance, or a prolonged impact on national advertising could cause the company's cash balance to deteriorate over the next 12 months," S&P Global said in an investors note.

Major cinema chains in mid-March shuttered their theaters amid the coronavirus spread, leading National CineMedia to cut operating costs and draw down on its revolving credit facility for fresh cash to maintain operations.

The credit rating agency estimated National CineMedia has about $169 million in cash on its books, as of May 5, "which we believe provides more than enough liquidity to fund operations while theaters remain closed."

At the same time, S&P Global expects National CineMedia's debt-equity ratio to spike above 5X this year amid the theater closures, and to remain above that level in 2021 as theater attendance is slow to recover, which will impact key in-theater advertising revenues.

S&P Global analysts added National CineMedia eliminated its loan covenant risk through July 2021 as it looks to weather a possible extended shutdown of theaters. Including debt service, National CineMedia's cash burn is put at around $9 million per month while theaters remain closed.

S&P Global argues theaters are eyeing a July reopening, but it sees "considerable risk to that timeline, especially for key markets in the northeast and California."