Shares of AMC Entertainment fell more than 20% on Monday after B. Riley FBR analyst Eric Wold downgraded the stock to sell amid the continued coronavirus-forced shutdowns.
The cinema chain has been on shaky financial ground as shares have dropped nearly 10% in the last five days, more than 36% in the last month and close to 72% in the year to date.
“We continue to believe that AMC has minimal liquidity options to make it through an extended theatrical shutdown period even with the recently reported decision to no longer pay rent on its theaters,” Wold wrote in a note to clients on Monday. “While we were clearly on the wrong side of the trade by maintaining a Buy rating up to the initial downgrade on March 18, we no longer see value in maintaining positions in AMC shares at this point.
“We acknowledge there remain numerous uncertainties that continue to loom over the exhibition industry, including when theaters will be allowed to reopen to the public; what the film slate will look like given most high-profile films have been pushed; and how initial movie-going demand will develop and/or what government restrictions on attendance levels will be put into place,” Wold continued. “With that in mind, we believe that it makes sense for exhibitors to explore all options to help keep the company afloat and around for the industry restart.”
The downgrade and additional stock selloff is just the most recent in a chain of unfortunate events.
Over the weekend, the New York Post reported that the cinema chain was considering hiring law firm Weil Gotshal & Manges to explore a potential Chapter 11 bankruptcy filing.
Analysts and industry experts have said that bankruptcy is the likely the course of action for AMC to make it out of the coronavirus pandemic.
In recent weeks, after already being forced to shut down theaters indefinitely nationwide, AMC has had to furlough more than 24,000 employees, including CEO Adam Aron. And Deadline reported that the cinema chain also sent letters to its landlords, telling them AMC would no longer be able to pay rent on its theaters until they reopen.
S&P Global also downgraded its credit rating for AMC from B to CCC-, which took the company from “highly speculative” to “default imminent, with little prospect for recovery.” Experts have been spelling doom for AMC for a while.
AMC has spent millions of dollars to build up its A-List frequent-moviegoer subscription service, an alternative to the now-defunct MoviePass that has lured 900,000 subscribers since its June 2018 launch but only turned a profit in the most recent fourth quarter.
In recent years, the company has also gone on an acquisition spree, buying Odeon and UCI Cinemas Holdings along with Carmike Cinemas in 2016, and Nordic Cinema Group in 2017.
AMC will almost certainly seek relief from the $2 trillion stimulus bill that was applauded by the National Association of Theater Owners. The lobby group said that the loan programs that will be established as part of the legislation will provide movie theater companies with much-needed support to remain solvent during the coronavirus pandemic. NATO also established a $2.4 million fund last week to provide financial support to movie theater employees who are now without any income because of theater closures.
“At the end of 2019, AMC’s balance sheet had $265 million in cash and $4.85 billion in debt — with additional liquidity under its domestic and European revolving credit facilities totaling about $332 million,” Wold wrote. “We believe it is unlikely that AMC would be able to secure any additional availability on those credit facilities or that additional debt sources would be made available. Even if we assume the complete elimination of rent payments, we estimate that the balance sheet and credit availability as of 4Q19 along with estimated 1Q20 results and normal working capital flows may leave three to four months of liquidity under a shutdown.”