For the largest movie theater chain in the world, bankruptcy could be the best option to survive the pandemic of the coronavirus.
The coronavirus pandemic has ravaged theaters and cracked their results since March, but none have been hit harder than AMC. The movie theater chain plunged into the pandemic with nearly $ 5 billion in debt, which it had accumulated by equipping its theaters with luxury seating and buying competitors such as Carmike and Odeon.
Since January, the company’s stock has fallen more than 60% and in the past five days, the stock has fallen by about 30%.
Last Friday, AMC said Mudrick Capital Management had agreed to invest $ 100 million to help the cash-tight movie theater chain survive the ongoing coronavirus pandemic. However, the movie theater chain still needs at least $ 750 million in additional liquidity to fund through 2021.
“In all fairness, I believe Chapter 11 is really the only road that will lead to AMC survival,” said Doug Stone, president of Box Office Analyst. “I can’t imagine there’s a hunger for another $ 750 million in stock sales, and any debt they take will be at astronomical rates.”
AMC has been focusing on fundraising for months. The cinema chain has already renegotiated its debt this year to improve its balance sheet and is exploring different ways to acquire additional sources of liquidity. It is also trying to find ways to increase turnout.
“The easy answer is that if they go out of business, it will likely be a reorganization rather than a liquidation,” said Michael Pachter, an analyst at Wedbush. “If they go out of business, they can scrap their lease obligations and renew the leases that make sense so they can demonstrably reduce their overall operating costs.”
As coronavirus cases continue to rage in the fall and winter months, studios have delayed major blockbusters until mid-2021 and some have opted to release major movies in theaters and streaming platforms simultaneously, limiting potential ticket sales.
The hope is that with a vaccine, the cases of Covid-19 will decrease significantly and the public will be more willing to return to the cinema. This, in turn, gives studios the confidence to keep major movie titles on the calendar. Without new content, moviegoers will not return in large enough numbers to give cinemas a real financial boost.
Still, a vaccine may not be generally available to the public until mid-2021. So while the news is promising, it does not solve the short-term problems facing movie theaters.
“I think now that the vaccines are rolled out, creditors and landlords will be willing to work with them,” Pachter said. “It was difficult to offer them more credit when there was no ‘light’ at the end of the tunnel, but it is likely that we will get back to normal by mid-year, so a reorganization makes perfect sense.”
AMC did not immediately respond to CNBC’s request for comment. The company has reiterated in SEC filings that bankruptcy is an option for the company if it is unable to raise more funds.
In non-pandemic times, the theater industry is profitable. In 2019, the domestic box office had its second-best year on record, with $ 11.4 billion in the net, just short of the record $ 11.9 billion posted in 2018. Prior to the global outbreak, 2020 was poised to hit a similar level.
Now cinema chains are desperately negotiating deals with lenders and landlords, trying to find creative ways to generate income. Most major movie theaters now offer cheaper private theater rentals as a way of luring reluctant moviegoers. Others have turned parking lots into concert venues, launched trivia nights, and even struck deals with local colleges to rent out the space for personal learning.
Movie theater chains will face strong headwinds in the first half of 2021 as there is a limited run of new films and cases are still expected to be high.
“January promises to be a very challenging month with little impact on the product,” said Stone. “In my opinion, the vaccine rollout won’t have much of an impact anyway until at least late in the second quarter. I don’t believe AMC will be able to make it until then without restructuring.”
But there is hope for AMC and other domestic cinema chains, said Eric Wold, senior analyst at B. Riley Securities.
“We have already seen a very strong film response in the countries that opened earlier than the US, especially China, which, in our opinion, provides a strong early look at what can be expected here in the US.” Wold said.
“And given what AMC and many other exhibitors learned during the pandemic, in terms of operating more efficiently, along with the flexibility of the company’s landlords, we could see AMC come out operationally stronger here than it was before the pandemic. are to wind down the balance again, ”he said.