AMC was in bad shape before coronavirus forced it to close its doors. But if it remains shuttered past June, it could die completely.
Like thousands of other businesses, the world's largest movie theater chain is teetering on the edge of oblivion. The company had a substantial $149 million loss in 2019 and is being challenged by digital streaming titans like Netflix, Hulu, and Disney+. Things are dire for AMC, but they may get a whole lot worse if closures continue throughout 2020.
Due to high debt and coronavirus outlook, S&P Global has downgraded AMC's credit rating to a CCC- rating, designating it as a risk for default and unlikely to recover. If AMC stays closed in the critical summer period from June to August, S&P analysts predict AMC would effectively shut down due to debt.
"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. 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," S&P Global wrote in a recent letter to investors.
S&P was careful to note that AMC could secure more funding through various means like the CARES act and stave off total closure.
"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. The company will likely pursue incremental financing through the CARES act or its lenders, but it is unclear when or if it will be able to secure additional liquidity."
AMC CEO Adam Aron was cautiously optimistic that moviegoers will be back in seats by summer 2020, and said the company was currently pricing out health safety equipment like distance thermometors used in airports.
"We're on uncharted times. None of us in our lives have lived through something like this before," Aron said in a recent CNBC interview.
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