American movie theater chain AMC Theatres announced Monday that it had raised a massive $917 million in fresh financing since mid-December, escaping bankruptcy as it continues its battle against the curbed demand for theatres caused by the pandemic.
AMC’s Battle With The Pandemic
Being a century old, AMC is the world’s largest theater operator with over 1000 theaters and 10,700 screens worldwide. Despite the pandemic, the company kept most of its theaters open in the US. The country’s biggest theatre markets, Los Angeles and New York City remained closed. The theatres that continued operations were required to limit seating to 50% capacity to ensure that the audience maintained social distancing amongst themselves.
Consequent Revenue Fallouts
What’s more, most of the much-awaited blockbusters have been either delayed or released on streaming services leading to revenue shortfall for theatres. The combined effect of the social distancing requirements, lockdowns, and fall in blockbuster releases caused AMC theatres’ attendance and revenue to plummet 92% by the end of the third quarter of 2020. The company forecasted that it would be short of cash by the end of 2020.
Worse Fourth Quarter
The fall continued in the fourth quarter. Attendance crashed by 92.3% in the US and 89% internationally compared to the same period last year. At that time, the Leawood, Kansas- based theatre chain operated 438 out of its 593 locations with limited seating, burning around $125 million per month in the process.
Amid such fallouts, CEO Adam Aron said that the company might not survive through the winter. The company revealed that at least $750 million needed to be raised to continue the business. At the same time, Hollywood and Wall Street were speculating a near Chapter 11 bankruptcy for AMC.
Latest Financial Lifeline
Luckily for AMC, investors seem to believe strongly in the company. Without the latest $917 million funding, the company would run out of cash as soon as this month.
The funds were raised through a combination of debt and equity. Over half of the funds, $506 million come from equity after securing $100 million of additional first-lien debt and translating $100 million of second-lien debt to equity, issuing 164.7 million of new common shares.
The $100 million in first-lien debt were received from the sale of payment-in-kind notes owed to Mudrick Capital Management by 2026. The company disclosed that commitment letters for $411 million of incremental debt through halfway of 2023 were executed.
The company hasn’t been paying rents on a “substantial portion” of its leases and has received default notices from landlords. According to a regulatory filing, AMC owed $450 million to landlords as of December 31.
CEO Adam Aron said that any talks of bankruptcy were off the table now. He pointed that the funds would extend AMC through July 2021 in case any addition in attendance didn’t occur and concessions from landlords continued.
AMC Remains Optimistically Cautious
The industry awaits wide distributions of the coronavirus vaccines which would improve the attendance in theatres. Yet AMC remains cautious. It said that even after the vaccinations lead to increased attendance, there exists a possibility of the virus worsening or mutating.
This creates a massive uncertainty about the company’s future cash outflows. To deal with it, the company has already started looking out for potential additional sources of liquidity for the unsure future.
Post the news, shares of AMC jumped 26%, climbing another 10% on Monday’s after-hours. The stocks have rocketed 89% in the past five days alone. Wall Street has a cautiously bearish outlook on the shares with the Moderate Sell consensus showing 4 recent Holds and 2 Sells. The average analyst price target is $2.51, representing a 43% downside potential over the next year.