S&P Raises AMC Theatres Credit Rating From ‘Selective Default,’ Maintains Negative Outlook

“While AMC plans to open its U.S. theaters in August, considerable risk and uncertainty related to this timeline remains,” S&P analysts say

Standard & Poors Global Ratings on Friday raised AMC Entertainment’s credit rating to CCC+, meaning the company is at “substantial risk,” from its previous SD, or “selective default” — when an issuer is in default on one or more of its obligations — rating.

The credit action comes after the Kansas-based theater operator completed an exchange for its subordinated notes, providing lenders with roughly up to 75% of par value for the debt they exchanged. S&P said in a report that it views this exchange as distressed.

“The exchange significantly reduces the company’s interest burden over the next 12 to 18 months and provides incremental liquidity with the issuance of $300 million in new debt,” S&P analysts wrote. “We believe the exchange reduces the risk of a payment default over the next 12 months, but the company’s capital structure remains unsustainable.”

While digging itself out of default, AMC still has a negative credit outlook from S&P. The credit rating firm expressed concern regarding AMC’s plans to begin reopening theaters later this month.

“Considerable risk and uncertainty related to this timeline remains. Studios may continue to delay films if the coronavirus pandemic does not show any signs of abating by the end of the month,” analysts wrote. “Furthermore, we expect a slow return of box office attendance once theaters are open due to consumers’ ongoing health and safety concerns. As a result, cash flow will likely remain negative through the rest of 2020 and into the beginning of 2021.”

AMC’s recent credit moves reduces the company’s risk of a liquidity crisis in the next 12 months, S&P analysts said, but AMC will have to deal with a “substantially higher debt burden” than before the coronavirus pandemic.

The good news for AMC is S&P does believe the theater chain has enough liquidity to fund its reopening, and also enough cash to remain closed for another seven to eight months. However, more delays in theater reopenings coupled with stagnant attendance once they do open would significantly eat into that.

If AMC has to delay reopening its U.S. theaters beyond the third quarter, it will likely need to secure additional capital to cover its cash burn or risk running out of cash before ramping up to operating at a profitable level,” analysts wrote.

The next couple of years trying to recover from the pandemic will likely be challenging for AMC — and the theater chain is not alone in that. S&P analysts said the company “remains dependent upon favorable business, financial, and economic conditions to meet its financial commitments over the long term.”

AMC on Thursday reported financial results for its second quarter, which CEO Adam Aron called “the most challenging quarter in the 100-year history of AMC.”

The company reported a loss of $561.2 million for the three-month quarter and revenue of just $19 million, which was down roughly 99% year-over-year.

Aron laid out the slew of moves AMC has done since March to help stave off collapse during the pandemic while virtually no revenue was coming into its theaters, including furloughing staff, raising capital, restructuring debt, and dramatically reduced its expenditures.

The company said that as of the end of June its cash on hand was $498 million, excluding restricted cash of $10.4 million.

“I think we’ve survived the corona crisis,” Aron said during a conference call with Wall Street analysts. “Now we just have to get back to running the company really well.”