AMC Theatres — whose business has effectively shut down because of the coronavirus pandemic — looks increasingly likely to file for bankruptcy with its cash reserves dwindling, according to Wall Street analysts.
In a report Thursday, MKM Partners analyst Eric Handler wrote, “Based on our view that theatres will be closed until at least August and our belief that AMC lacks the liquidity to stay afloat until that time, we expect the company will soon be faced with filing for bankruptcy.” He downgraded AMC Theatres stock from “neutral” to “sell.”
AMC reported $265 million in cash and equivalents on hand, plus $332 million available via lines of credit, as of Dec. 31, 2019. “AMC is the exhibition company we view with the least financial flexibility,” Handler wrote in his report. “We believe the company’s monthly cash burn rate in a no-revenue environment is running at $155 million per month, which likely keeps AMC liquid until June/July.”
Shares of AMC Entertainment Holdings were down more than 4% in trading Thursday. AMC did not immediately respond to a request for comment.
Even if AMC is able to tap government bailout funds, Handler wrote, the company’s high leverage ratio — with $4.75 billion in debt — “will make for tough sledding… thus making a reorganization inevitable.”
Handler’s prediction that AMC Theatres is heading for bankruptcy reorganization comes after a Loop Capital’s Alan Gould, in an April 8 research note, called that scenario “a distinct possibility” and added that at a minimum the theater chain will need highly dilutive financing to stay afloat.
In an effort to cut costs while theaters remain closed indefinitely due to the COVID-19 crisis, AMC Theatres, the nation’s biggest cinema chain, furloughed more than 600 corporate employees including CEO Adam Aron. AMC also has informed landlords that will not pay rent starting in April while its cinemas are shuttered.
That elimination or deferral of monthly rent payments would “essentially double the number of months that AMC could survive without any revenue and without any liquidity event,” B. Riley FBR senior analyst Eric Wold wrote in a note Wednesday, maintaining a “neutral” rating on the stock. The company also may be able to obtain working capital assistance from vendors, including via a deferral of payments due to the studios, which “has the potential to increase this safety net even further,” Wold added.