Cinema Stocks Teeter; Wall Street is considering possible bankruptcy of...

Exhibition stocks took a hit on Tuesday when AMC Entertainment announced the money could be gone by the end of the year and Walt Disney was the youngest major content company to reorganize operations around streaming.

As theaters reopen to a limited audience with no major New York and Los Angeles markets and a lack of new studio rates, AMC said in an SEC filing that it has enough money to run by the end of this year – early next year to pass and to need “material”. additional capital to operate beyond this point. It is not to be taken for granted that capital, or enough of it, will show up to revive speculation on Wall Street that AMC might be forced to file for bankruptcy.

“There is a significant risk that these potential sources of liquidity will not be realized or will not be sufficient to generate the substantial amounts of additional liquidity that would be required before the company is able to achieve more normal operating income,” said AMC Filing .

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“I really don’t know how not to go bankrupt,” said a Wall Street analyst. “You shouldn’t have any more money by the end of January. And most companies fail to file when they have minus ten million in cash. The lawyers have to be paid. ”

At the close of trading, AMC shares were down 13%. Cinemark, Marcus and National CineMedia were down 8%, 7.2% and 9%, respectively. All had stabilized in trade outside of business hours.

AMC is in a tight corner as it has confirmed. It has about $ 5 billion in debt, and high debt means high interest expense. AMC, which is majority-owned by the Chinese conglomerate Wanda, sparked it off with a series of acquisitions, dividend payments and upgrades to its theaters before the pandemic.

In contrast, Cinemark has stated that it has around 17 months of liquidity and less than half of AMC’s debt. (One analyst attributed Cinemark’s decline in price to the fact that it is becoming increasingly difficult to sell AMC stock. Short selling is when investors borrow, sell, and then buy back stocks to return to the lender, betting on that the price will fall Investors could short out Cinemark as the only route to a brief exhibition.)

AMC said in an SEC filing this morning that it raised nearly $ 40 million in a stock sale, which is good. But his cash burn is about $ 115 million per month, and as of August 30th, he had about $ 500 million in funds. The company said today it is considering asset sales, joint ventures, minority stake sales, and new rounds of stock or bond sales. It recently sold its Baltic theaters and, according to a source, had been in talks to divest its Nordic theaters.

Industry insiders believe that AMC Classic, the former Carmike Cinemas theaters acquired in 2016, will be the first asset on the block of a bankruptcy auction.

Meanwhile, according to B Riley Securities analyst Eric Wold, asset sales are possible, but it is a “buyers market” – so prices would be low. “Given the unlikely possibility of additional debt financing, we would expect further dilution through additional stock offerings and / or minority stakes in the company’s equity.”

AMC restructured its debt and gave it a runway in July, but that can only last so long if the cinema doesn’t resume properly.

Wold called the absence of New York and LA truly crippling. AMC has opened more than 80% of its US theaters, but a lack of new movie content resulted in an 85% drop in attendance this morning, he said in a note. And while only 17% of AMC’s domestic theaters have not reopened (some in North Carolina and Washington will be online soon), “the most prolific theaters” in California and New York still have an uncertain reopening schedule. He said that 17% of theaters that have not yet reopened generated 23% of AMC’s domestic revenue in 2019. He is “not surprised to see the studios keep releasing the film release calendar under these circumstances.”

“If things go on like this and there aren’t many films and they stay open, they’ll be stressed,” said Credit Suisse analyst Meghan Durkin. The rescheduling “put the can on its knees for 12 to 18 months due to some of the interest expense, but its cash burn rate is still more than twice that of Cinemark.”

Royal parent company Cineworld decided it was too expensive to stay open, saying almost all theaters in the US and UK would be closed again.

On a note on Oct. 5 following news that MGM had postponed the next James Bond film No time to die From November to 2021, Loop Capital analyst Alan Gould called it a “possible death knell for AMC.” Disney last announced that Pixar’s soul would follow Mulan straight to Disney +.

Gould predicts that the domestic box office fell 95% in the third quarter and 85% in the fourth quarter. He sees the domestic box office rising to $ 2.4 billion this year and $ 8.6 billion in 2021, up from $ 11.3 billion in 2019. He also anticipates that the number of screens will drop from the current 41,000 to around 36,000 over the next two years.

COVID and theater issues accelerated the focus on streaming even before the pandemic. On Monday, Disney announced a rare reorganization of its content and distribution businesses to maximize streaming potential, followed by WarnerMedia from AT&T and NBCUniversal from Comcast.

One advantage is that the closure of Regal benefits the theaters that are still open. Adam Aron, CEO of AMC, said a unique window deal with Universal will make it possible with a handful of films, including Focus Features. Kajillionaire, come play, and let him go and universal Croods: A New Age.

Besides, Aron was good at finding fresh money. AMC raised $ 500 million on a debt offering and an additional $ 200 million on debt restructuring at the start of the pandemic, which also lowered debt and interest expenses and postponed some repayment deadlines. Silver Lake, Partners invested $ 600 million in AMC in 2018, but it is not known whether the investment firm would save them or not.

Silver Lake was not immediately available for comment.

AMC declined to comment.

AMC rents 875 theaters (10.1,000 screens) and owns or partially owns 62 theaters (561 screens) worldwide. In the United States, AMC manages or has a partial interest in seven theaters and 73 screens.

Bankruptcies are nothing new to the industry, and some experts believe that lowering the number of US screens wouldn’t be wrong given the changes in the entertainment landscape. Two decades ago, a handful of exhibitors went bankrupt and bought each other out after running into debt through superstructures. Between 1999 and 2001 bankruptcies included Regal, Carmike, Loews Cineplex, United Artists, General Cinema, Edwards Theaters, Mann Theaters, Dickinson Theaters and Silver Cinemas.

B Riley’s Wold maintains a “neutral” rating for AMC, which it has classified as “possibly overly optimistic given our ongoing liquidity concerns”. However, he also said that “should major US markets not reopen in the face of the short-term green light, both the response to the company’s share price and its ability to raise capital could be extremely positive.”

Anthony D’Alessandro contributed to this report