AMC Says Bankruptcy ‘Off the Table’ for Now With Fresh Funds
Katherine Doherty and Antonio Vanuzzo | Bloomberg
The world’s largest cinema chain’s shares soared as much as 37% in New York trading Monday and were up 23% to $4.33 at 9:48 a.m. And AMC’s bonds were among the biggest gainers in the U.S. high-yield market. The second-lien notes rose as much as 12.75 cents on the dollar to a high of 52.25 cents, according to Trace bond trading data.
The Leawood, Kansas-based company has raised $506 million of equity, after securing $100 million of additional first-lien debt and converting $100 million of second-lien debt into equity, it said in a statement Monday. It also said it executed commitment letters for $411 million of new debt through mid-2023.
“Any talk of an imminent bankruptcy for AMC is completely off the table,” AMC Chief Executive Officer Adam Aron said.
AMC’s deal already has backing from a combination of debt and equity issued in recent months, according to the statement. With the new money, AMC says it extended its financial runway “deep” into 2021, a timeline in which theater chains are waiting for coronavirus vaccines to be widely distributed and moviegoers to return for blockbuster releases.
“The additional liquidity helps keep the lights on for now, but the cinema sector as a whole is still largely challenged,” with attendance at all-time lows, said Mike Campellone, an analyst with Bloomberg Intelligence.
In large markets such as New York City and Los Angeles, cinema chains including AMC have been unable to reopen any locations. In the filing Monday, AMC said fourth-quarter attendance fell about 92% in the U.S. and 89% internationally from the same period a year ago, and it was burning cash at about $124 million a month.
AMC estimated it could hold out through July in the absence of any increase in attendance, and assuming continued concessions from landlords, who were owed $450 million as of Dec. 31, according to a regulatory filing. AMC said it has stopped rent payments on “a substantial portion” of its leases and that it’s received default notices.
The company also said it needs permission from its creditors to get its financing in place. Talks are underway with creditors to cut leverage, including the potential to convert debt to equity, which would dilute current shareholder value, the company warned.
“AMC is burning so much cash with a ton of debt and a lot of rent to pay,” Michael Pachter of Wedbush Securities said in a statement to Bloomberg. “They will recover if they can hold off their creditors, so they can keep borrowing and issuing stock to fund their $100 million” a month of cash burn, he said.
AMC said it’s in discussions with its lenders to obtain a waiver from a requirement to maintain a certain leverage threshold. The company previously got permission to waive that requirement which goes into affect around the second quarter of 2021, which AMC says it does not expect to satisfy.
The company should have enough to get through the middle of the summer, when the vaccine should be more broadly distributed and theaters might fully reopen, Pachter said. At the current rate of vaccinations, “we should be close to where we need to be by June 30,” when there will be “a lot of pent-up demand to see movies,” he said.
“Looking ahead, for AMC to succeed over the medium term, we are going to need for much of the general public in the U.S. and abroad to be vaccinated,” Aron said in the company statement.
AMC cautioned that even with a vaccine and increase in cinema attendance, the virus could worsen or other strains could appear, causing its use of cash to remain uncertain. Accordingly, AMC said it’s looking at potential additional sources of liquidity it may pursue in the future.
The company said at the end of last year that it needed to raise at least $750 million to stay in business. Without new money, its existing cash would have been depleted as soon as this month. The company has also been talking with its landlords to amend terms of certain leases and avoid a potential cash crunch.
The latest financing deal includes a loan of 400 million pounds ($547 million) to its U.K. subsidiary Odeon Cinemas Group Ltd., which will refinance a 100 million-pound revolving facility and provides 300 million pounds of liquidity. The transaction is subject to the consent of Silver Lake Management, majority holder of AMC’s convertible notes due 2026.
The $100 million in first-lien debt proceeds came from a sale of payment-in-kind notes due 2026 to Mudrick Capital Management on Jan. 15, AMC said.
Theater chains have been hard hit by government-mandated shutdowns during the Covid-19 pandemic. While some locations have been able to reopen at limited capacity, many moviegoers have been reluctant to attend. The problem has been compounded by studios delaying major releases that drive ticket sales.