S&P Global has raised its credit rating for AMC Entertainment Holdings, but the mega-exhibitor remains far from taming its overall debt load, even after a recent new debt issue.
AMC saw its ratings bumped up to ‘CCC+’, from ‘SD’ (selective default), but has a negative outlook after the cinema chain issued a new $2 billion term loan, due 2029, and $414 million of exchangeable notes due 2030. “While AMC has extended most of its near-term maturities, we continue to view its capital structure as unsustainable due to its substantial debt burden,” S&P Global said in a statement.
On July 22, AMC said it had tackled its debt load by putting theaters and related intellectual property up as collateral to extend maturities on 2026 debt to 2029. But S&P Global says efforts to pay down an estimated $4.5 billion in long-term borrowings face industry headwinds as it attempts to ride out the pandemic and the impact of the disruption in its Hollywood movie calendar due to the dual actors and writers strikes.
“The negative outlook reflects our expectation that AMC’s revenue will decline by 5 percent-7 percent in 2024 due to a limited theatrical release slate, resulting in negative free operating cash flow and leverage in the mid-7x area,” the credit ratings agency added in its commentary about AMC’s overall capital structure.
The credit ratings firm added AMC’s box office performance should improve towards the end of 2024, “but we think that full-year performance will be materially worse than 2023.”
“Through the first half of 2024, the box office has faced significant disruption from the strikes, especially in the second quarter. We now forecast total domestic box office revenue of around $8.25 billion for 2024, a decline of about 7% compared to 2023,” S&P Global forecast.
In early 2021, AMC became a popular stock among “meme” traders after the company appeared close to bankruptcy amid the pandemic fallout at movie theater chains. At the time, the stock surge helped the exhibition giant strengthen its financial position and diversify its revenue streams.
But the latest debt restructuring deal comes as AMC grapples with a heavy debt burden and CEO Adam Aron continues to reduce borrowings and strengthen the company’s balance sheet, where possible, to run the business. That has involved past capital raises to offset the company’s high debt load.