Analyst: AMC Theatres Bankruptcy ‘Likely’

Don’t count on Wall Street being a friend during the coronavirus pandemic if you’re a movie exhibitor.

Longtime analyst Eric Handler with MKM Partners April 9 issued a note with a “sell” rating on AMC Entertainment shares, contending the parent to AMC Theatres — the nation’s largest exhibitor — is likely headed toward bankruptcy.

“Based on our view that theaters will be closed until at least August and our belief that AMC lacks the liquidity to stay afloat during that time, we expect the company will soon be faced with filing for bankruptcy,” Handler wrote. “Further fueling our liquidity concerns is AMC’s decision to stop paying rents to landlords.”

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AMC, which operates 1,000 theaters and about 11,000 screens worldwide, has seen its business literally shutdown overnight as fears about the coronavirus spread resulted in state governments banning groups of more than 10 people.

AMC shares have rebounded slightly to more than $3 after falling to $2 per share on April 3.

At the outset of the pandemic, AMC reportedly had about $600 million in assets, which have steadily evaporated as the chain spends upwards of tens of millions of dollars weekly on overhead expenses with zero revenue coming in.

CEO Adam Aron has called on assistance from the recently passed $2.2 trillion relief package from Congress. “We don’t need a bailout, we just need loans, which we will be able to pay back with interest when we re-open and revenues start coming back in the door,” Aron said on March 21.

Four days later, Aron and 600 other AMC executives were furloughed by the parent company. Aron continues to sound positive, telling CNBC on March 31 he thought theaters could be back operating by mid-June.

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Disney, which has dominated the box office in recent year, has Pixar Animation’s Soul slated to bow in June with live-action Mulan rescheduled for July 24 from its original March 27 debut.

Disney executive chairman Bob Iger told Barron’s the studio’s tentpole titles have been put on hold, but other movies could be headed for early release on subscription streaming video platform Disney+.

“In terms of movies going ahead after [Artemis Fowl] there may be a few more that we end up putting directly onto Disney+, but for the most part a lot of the big tentpole Disney films, we’ll simply wait for slots,” Iger said. “In some cases, we’ve announced new ones already, but later on in the calendar.”

Michael Pachter with Wedbush Securities in Los Angeles, doubts AMC will default on its debt until they breach year-end covenants or stop paying debt service.

“Their landlords could force them into bankruptcy, but it doesn’t really make sense for them to do so, since there isn’t going to be a ton of demand for the real estate when everyone else is closed,” Pachter said in an email.

The analyst believes the situation underscores why some AMC creditors are seeking legal counsel to see if they could force bankruptcy sooner.

“[Bankruptcy] is unlikely till year-end without an external trigger,” Pachter said. “The company might choose to file for a restructuring [Chapter 11], which is what the creditors are hoping for.”

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