For the world’s largest movie chain, bankruptcy could be the best option for surviving the coronavirus pandemic.
The coronavirus pandemic has hit theaters since March and broken its results, but no one has been affected more than AMC. The film chain headed into the pandemic with nearly $ 5 billion in debt, which it had amassed by equipping its theaters with luxury seats and buying competitors such as Carmike and Odeon.
Since January, the company’s shares have plummeted by more than 60% and, in the last five days, shares have fallen by around 30%.
Last Friday, AMC said Mudrick Capital Management had agreed to invest $ 100 million to help the trouble-free movie chain survive the ongoing coronavirus pandemic. Still, the film chain will still need at least $ 750 million in additional liquidity to fund cash requirements by 2021.
“Frankly I think Chapter 11 is really the only path that will lead to AMC’s survival,” said Doug Stone, president of Box Office Analyst. “I can’t imagine there being a hunger for another $ 750 million in stock sales, and that any debt they incur will have an astronomical pace.”
AMC has been focusing on fundraising for months. The film chain has already renegotiated its debt to improve its balance sheet this year and is exploring various ways to acquire additional sources of liquidity. It also tries to figure out ways to increase attendance levels.
“The easy answer is that if they declare bankruptcy, it’s likely to be a reorganization rather than a liquidation,” said Michael Pachter, an analyst at Wedbush. “In the event of bankruptcy, they can eliminate their lease obligations and renew meaningful leases, so they can certainly reduce their overall operating expenses.”
As coronavirus cases have continued to rise during the fall and winter months, studios have postponed major blockbuster hits until mid-2021 and some have opted to release major films in cinemas and broadcast platforms at the same time, reducing potential ticket sales.
The hope is that with a vaccine, Covid-19 cases will decrease substantially and the public will be more willing to return to cinemas. In turn, this will give the studios confidence to keep the major movie titles on the calendar. Without new content, moviegoers will not return in sufficient numbers to give cinemas a real economic boost.
Still, a vaccine may not be widely available to the public until mid-2021. Thus, while the news is promising, it does not solve the short-term problems facing movie theaters.
“I think now that the vaccines are being implemented, creditors and owners will be willing to work with them,” Pachter said. “It was hard to offer them more credit when there was no ‘light’ at the end of the tunnel, but it’s likely that by mid-year we’ll be back to something close to normal, so a reorganization makes eminent sense.” .
AMC did not immediately respond to CNBC’s request for comment. The company has reiterated in SEC statements that bankruptcy is a possibility for the company if it fails to raise more funds.
In non-pandemic times, the theater industry is profitable. In 2019, the domestic box office had its second-best year in history, with $ 11.4 billion, which is just off the record $ 11.9 billion released in 2018. Before the global outbreak, 2020 had been ready to reach a similar level.
Now, movie chains are desperately renegotiating deals with lenders and owners and trying to find creative ways to generate revenue. Most major cinemas now offer cheaper private theater rentals as a way to attract reluctant filmmakers. Others have transformed car parks into concert halls, launched nights of curiosities and even negotiated agreements with local schools to rent space for face-to-face learning.
Movie chains are facing tough winds in the first half of 2021, as there is a limited list of new films and cases are expected to be high.
“January is becoming a very challenging month, with few consequences when it comes to the product,” Stone said. “Anyway, in my opinion, vaccine deployment is not likely to have a big impact until at least the end of the second quarter. I don’t think AMC can handle it without a restructuring until then.”
But there is hope for AMC and other national movie chains, said Eric Wold, a senior analyst at B. Riley Securities.
“We’ve already seen a very strong cinematic response in those countries that opened up before the United States, especially China, which we believe provides a strong early look at what can be expected here in the United States.” Wold said.
“And given what AMC and many other exhibitors have learned during the pandemic, in terms of more efficient operation, along with the flexibility of the company’s partner owners, we could see AMC come out of this in a stronger position operationally. that before the pandemic this would provide a path to deleveraging the balance sheet once again, ”he said.