AMC Theatres Faces Financial Worry After Credit Rating Downgrade

AMC Theatres, America's largest movie cinema chain, has had its credit rating downgraded to reflect an "imminent" risk of defaulting due to the impact of the global coronavirus (COVID-19) pandemic. The Wrap reports that S&P Global "downgraded its credit rating for AMC Entertainment to CCC- from B" on Thursday, taking the company's outlook from "Highly speculative" to "Default imminent, with little prospect for recovery," as the agency forecast the closure of AMC Theatres to extend beyond June. [ignvideo url="https://www.ign.com/videos/2020/03/13/how-coronavirus-delays-are-impacting-2020-movies-ign-now"] "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 Sept. 30, 2020, absent a waiver from its lenders," S&P analysts wrote in a ratings note. According to Deadline, AMC was the first theatre chain to address the COVID-19 pandemic, as the company closed its 634 locations across the US and Canada and 120 venues in the UK and Ireland, operated under Odeon, on March 17 to help slow the spread of the virus. Then, on March 25, the company announced that it had furloughed its corporate employees, including its CEO Adam Aron, as part of a plan to "preserve cash and to ensure that AMC can reopen our doors once this health crisis has dissipated." However, even after significantly lowering its fixed costs and capital spending requirements, S&P analysts predict the company's liquidity sources to only "last through mid-summer," so AMC might have to try to secure additional liquidity through the CARES act or its lenders. [widget path="global/article/imagegallery" parameters="albumSlug=every-delayed-movie-due-to-coronavirus-so-far&captions=true"] Though it's unlikely, S&G said it could consider raising the rating if "AMC were able to secure additional liquidity without further burdening its capital structure and if we expected the company would be able to generate substantial cash flow in 2021." Meanwhile, many drive-in movie theatres have experienced a sudden surge of interest from cinephiles looking for an alternative to movie-watching in isolation. A number of the 305 outdoor venues across America reported an increase in business shortly after the majority of traditional brick-and-mortar movie theatres temporarily closed their doors. For a list of recommendations on how best to help, and stay safe, during the Coronavirus pandemic, please read our resource guide. [poilib element="accentDivider"] Adele Ankers is a Freelance Entertainment Journalist. You can reach her on Twitter.

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