AMC Theaters Credit Rating Downgraded, Recovery Unlikely Due to Coronavirus Shutdown

Standard & Poors has downgraded the credit rating of AMC Theaters, and the organization says they do not believe that the chain has the capacity to bounce back from the damage done by the novel coronavirus pandemic, which has closed cinemas around the world and led distributors to seek out alternative means of getting their films in front of audiences. The company, which is already deep in debt, will likely face serious financial problems in the fall, unless creditors can grant AMC a waiver, according to the organization, which helps set the credit rating for large organizations like corporations and governments.

AMC's creditors may be more likely than usual to grant such a waiver -- after all, the COVID-19 impact has hit virtually everyone. Still, it seems likely that AMC will face an uphill battle in recovering from the losses. Last year at this time, the domestic box office was generating about $200 million in revenue per week. Now, it's a few thousand dollars from the handful of places where theaters are still open.

"While there is a high degree of uncertainty about the rate of the coronavirus' spread and when the pandemic will peak, some government authorities estimate that the peak will occur between June and August," S&P analysts wrote (via TheWrap). "We expect AMC Entertainment Holdings Inc.'s (AMC) theaters will remain closed beyond June due to the impact of the global coronavirus pandemic. We do not believe AMC has sufficient sources of liquidity to cover its expected negative cash flows past mid-summer, and we believe the company will likely breach its 6x net senior secured leverage covenant when tested on September 30, 2020, absent a waiver from its lenders."

Even while theaters were taking in huge amounts of money in 2019 -- a record year for the box office -- AMC was running a deficit. According to earnings statements, the country's largest theater chain lost more than $100 million last year. The company reported a $5 billion-plus deficit at the end of 2019 and losses of $149 million for the year -- numbers that aren't likely to bounce back this year. In 2018, they were profitable -- but by less money (around $110 million) than last year's deficit.

There are a lot of reasons for that kind of thing, not least of which is that huge movies like Avengers: Endgame and The Lion King bring in a ton of money, but a big chunk of it goes to the distributors and studios rather than the exhibitors. And in a movie where people joked about not wanting to get up and go to the bathroom, you can imagine that might impact the potential for concession sales.

Last week, S&P had reduced AMC's credit outlook from "stable" to "negative" as the industry showed the first serious signs of stress from the coronavirus shutdown.