Exhibition shares took a beating Tuesday as AMC Entertainment announced its cash might be gone by year end and Walt Disney became the latest big content company to restructure operations around streaming.
As theaters reopen to limited audiences without key New York and Los Angeles markets and a paucity of new studio fare, heavily indebted AMC said in an SEC filing that it has enough cash to last until late this year-early next and would require “material” additional capital to operate beyond that point. It’s not a given that capital will appear, or enough of it, reviving speculation on Wall Street that AMC may be forced to file for bankruptcy.
“There is a significant risk that these potential sources of liquidity will not be realized or that they will be insufficient to generate the material amounts of additional liquidity that would be required until the Company is able to achieve more normalized levels of operating revenue,” AMC’s filing said.
“I really don’t know how they don’t go bankrupt,” said one Wall Street analyst. “They should be out of cash by the end of January. And most companies don’t file when they are minus ten million in cash. The attorneys have to be paid.”
AMC is in tight corner, as it acknowledged. It has about $5 billion in debt and high debt means high interest expense. AMC, which is majority owned by Chinese conglomerate Wanda, racked it up pre-pandemic with a string of acquisitions, dividend payments and upgrades to its theaters.
In contrast, Cinemark has said it has about 17 months of liquidity and less than half the debt of AMC. (One analyst attributed Cinemark’s stock dip in part the fact that it’s getting increasingly hard to short AMC stock. Short selling is when investors borrow shares, sells them and then buy them back to return to the lender, betting the price will fall. He said investors may be shorting Cinemark as the only way to short exhibition.)
AMC noted in an SEC filing this morning that it had raised close to $40 million in a stock sale, which is good. But its cash burn is about $115 million a month and as of August 30 it had about $500 million in funds. The company said today it is considering asset sales, joint ventures, the sale of minority investments and new rounds of stock or bond sales. It recently sold off its Baltic theaters and, one source said, had been in talks to divest its Nordic cinemas.
Industry sources think the first asset on the block in a bankruptcy auction would be AMC Classic, the former Carmike Cinemas theaters acquired in 2016.
Meanwhile, said analyst Eric Wold of B Riley Securities, asset sales may be possible but it’s “a buyers’ market” — so prices would be low. “Given the unlikely ability to complete any additional debt financings, we would expect continued dilution under additional equity offerings and/or minority investments in the company’s equity.”
AMC restructured its debt in July giving it some runway but that can only last so long if moviegoing doesn’t resume properly.
Wold called the absence of New York and LA truly crippling. AMC has opened more than 80% of its U.S. theaters but a lack of new film content drove an 85% same-theater attendance decline, he said in a note this morning. And although only 17% of AMC’s domestic theaters have yet to reopen (with some in North Carolina and Washington coming online soon), “the most productive theaters” in California and New York still have an uncertain reopening timeline. He said those 17% of theaters yet to reopen generated 23% of AMC’s 2019 domestic revenue. He’s “not surprised to see studios continue to push out the film release calendar under these circumstances.”
“If things go on like this and there are not a lot of movies and they stay open they will be stressed,” said analyst Meghan Durkin of Credit Suisse. The debt restructuring “kicked the can down the road 12-18 months on some of the interest expense, but their cash burn rate is still more than twice what Cinemark’s is.”
Regal parent Cineworld decided it was too expensive to stay open and said it was re-closing almost all of its U.S. and U.K. theaters.
In a note on October 5, after news that MGM had move the next James Bond film No Time to Die from November into 2021, analyst Alan Gould of Loop Capital called it a “possible death knell for AMC.” Disney most recently announcing that Pixar’s Soul would follow Mulan direct to Disney+.
Gould forecasts the domestic box office fell 95% in the third quarter and 85% in the fourth quarter. He sees the domestic box office settling at $2.4 billion this year and $8.6 billion in 2021, down from $11.3 billion in 2019. He also expects the number of screens to decline to about 36,000 over the next two years, down from 41,000 currently.
COVID and theater woes have hastened a focus on streaming already underway before the pandemic. On Monday, Disney announce a rare restructuring of its content and distribution business units to maximize the potential of streaming, followed similar moves by AT&T’s WarnerMedia and Comcast’s NBCUniversal.
One upside is that Regal’s closing will benefit theaters that remain open. AMC CEO Adam Aron has said a unique windowing deal with Universal will give it a leg up in with a handful movies including Focus Features’ Kajillionaire, Come Play, and Let Him Go and Universal’s Croods: A New Age.
Also, Aron has been good at finding fresh cash. AMC raised $500 million in a debt offering early in the pandemic and other $200 million the debt restructuring, which also lowered debt and interest expenses and pushed out some repayment deadlines. Silver Lake, Partners invested $600 million in AMC in 2018 but it’s not known whether or not the investment firm would bail them out.
Silver Lake wasn’t immediately available to comment.
AMC declined to comment.
AMC leases 875 theaters (10.1k screens) and owns or partially owns 62 theaters (561 screens) worldwide. Stateside, AMC manages or has a partial interest in seven theatres and 73 screens.
Bankruptcies are nothing new to the industry and some pundits think a lower U.S. screen count wouldn’t be amiss given shifts in the entertainment landscape. Two decades ago, a handful of exhibitors went bankrupt and bought each other out after racking up debt through overbuilding. Between 1999 and 2001, bankruptcies included Regal, Carmike, Loews Cineplex, United Artists, General Cinema, Edwards Theatres, Mann Theatres, Dickinson Theatres and Silver Cinemas.
B Riley’s Wold is hanging in with a “neutral” rating on AMC, which he acknowledged “may be too optimistic given our continued liquidity concerns.” But he said he also thinks that “should the major U.S. markets yet to reopen given the green light in the near-term, both the reaction to the company’s share price and ability to secure capital could be extremely positive.”
Anthony D’Alessandro contributed to this report.
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