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AMC’s Credit Rating Downgraded by S&P With Recovery Unlikely

S&P Global on Thursday downgraded its credit standing for AMC Entertainment to CCC- from B, which takes the corporate from “Highly speculative” to “Default imminent, with little prospect for recovery.”

AMC has been rocked on account of the novel coronavirus pandemic, which has pressured all film theaters to shut and Hollywood studios to both push movie releases previous the pivotal summer time months or take them off the slate for 2020 altogether.

“While there is a high degree of uncertainty about the rate of the coronavirus’ spread and when the pandemic will peak, some government authorities estimate that the peak will occur between June and August,” S&P analysts wrote in a notice on Thursday. “We expect AMC Entertainment Holdings Inc.’s (AMC) theaters will remain closed beyond June due to the impact of the global coronavirus pandemic. We do not believe AMC has sufficient sources of liquidity to cover its expected negative cash flows past mid-summer, and we believe the company will likely breach its 6x net senior secured leverage covenant when tested on Sept. 30, 2020, absent a waiver from its lenders.”

AMC is the nation’s largest cinema chain, and it’s drowning in debt. The firm reported a $5 billion-plus deficit on the finish of 2019 and losses of $149 million for the yr (after recording a $110 million revenue in 2018).

During the corporate’s most up-to-date fourth-quarter convention name, AMC CEO Adam Aron mentioned that he and different high executives had agreed to chop their salaries and bonuses for 3 years in change for inventory that may solely vest if the share worth doubles.

Last week, S&P had already knocked AMC’s credit score outlook to unfavorable from secure. Having a stable credit score footing, particularly now could be essential for firms as a method to boost money to assist float their companies in the course of the shutdown.

AMC additionally furloughed 600 company staff final week, together with CEO Adam Aron.

“Even after significantly lowering its fixed costs and capital spending requirements, we only expect the company’s liquidity sources to last through mid-summer and are revising our assessment of AMC’s liquidity to weak” analysts wrote. “The firm will probably pursue incremental financing by the CARES act or its lenders, however it’s unclear when or if it will likely be capable of safe extra liquidity.

“While unlikely, we could raise the rating if AMC were able to secure additional liquidity without further burdening its capital structure and if we expected the company would be able to generate substantial cash flow in 2021,” they continued. “This would likely require conclusive knowledge about the length of the theater closures and a view that the box office would return to normalized levels in 2021.”

AMC spent hundreds of thousands to construct up its A-List service, an alternative choice to the now-defunct MoviePass that has lured 900,000 subscribers since its June 2018 launch however solely turned a revenue in the latest fourth quarter.

In current years, the corporate has additionally gone on an acquisition spree, shopping for Odeon and UCI Cinemas Holdings together with Carmike Cinemas in 2016, and Nordic Cinema Group in 2017.

For some time, AMC had a monetary parachute from Chinese conglomerate Dalian Wanda, which acquired a majority stake in 2012. But in 2018 Wanda scaled down its place within the theater chain as Chinese regulators incentivized firms to chop again on their international holdings. AMC then turned to personal fairness agency Silver Lake, closing a $600 million funding in September 2018.

Not solely has the unfold of the coronavirus led to the closure of AMC and its rivals’ theaters, however it threatens to upend studios’ theatrical and enterprise fashions. Studios have delayed productions and pushed launch dates, and worse, some have determined to squeeze the theatrical window between an in-theater and video-on-demand residence releases on titles like Warner Bros.’ “Birds of Prey” and Universal’s “Trolls World Tour.”

The writing’s been on…

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