AMC Seeks More Liquidity to Avert Movie Theater Bankruptcy

AMC Entertainment Holdings Inc. needs to raise at least $750 million to stay open and might go bankrupt if the effort doesn’t succeed.

The world’s largest movie-theater chain said in a filing Friday that without new financing, existing cash will be depleted as soon as next month. To remain viable through 2021, AMC is looking at selling more shares, financing from European sources and deals with debt holders including Mudrick Capital Management.

Current stockholders probably will be wiped out if AMC winds up in bankruptcy, the company said. Its shares lost as much as 5.4% after the disclosure, with the stock still down 13 cents to $3.96 at 3:27 p.m. in New York.

Theater chains have been hard hit during the Covid-19 pandemic by government-mandated shutdowns, and then by the reluctance of moviegoers to risk attending. The problem has been compounded by studios delaying major releases that would attract more customers.

Scarce Attendance

Attendance at AMC’s U.S. locations fell 92% in the fourth quarter from the same period a year ago. The company has limited capacity and hours, and chose to close some of its U.S. theaters. In large markets such as New York City and Los Angeles, cinema chains have been unable to reopen any locations.

AMC is negotiating rent breaks with its landlords before more than $400 million of deferred rent comes due next year, and said it must reach an agreement to ease a “substantial portion” to avoid bankruptcy. A court filing is still the most likely outcome because liquidity is dwindling so quickly, analysts at CreditSights wrote in a new report.

Cash stood at around $320 million as of last month, down from $418 million in September, according to the filing. Excluding recent equity offerings, AMC’s average monthly cash burn was about $125 million during October and November.

AMC signed a commitment letter with Mudrick Capital that calls for the investment firm to buy $100 million of new 15% / 17% first-lien secured pay-in-kind toggle bonds due 2026 issued by AMC. In exchange, Mudrick would receive a commitment fee equal to about eight million AMC shares. The deal also calls for exchanging $100 million of AMC 10% / 12% second-lien subordinated secured PIK toggle bonds due 2026 currently held by Mudrick for about 13.7 million shares.

Lender Talks

The theater chain said it exchanged term sheets and held due diligence discussions with other parties, and it expects talks will “intensify” in the coming weeks. The negotiations include new-money financing and converting second-lien debt to equity, which would help reduce AMC’s leverage but dilute current shareholders, the company said.

First-lien lenders also have expressed interest in providing a bankruptcy loan, the company said. That debt would rank senior in the event of a court filing. It’s seeking an agreement with creditors under its first-lien facility to extend a waiver.

Lenders to the cinema chain previously held preliminary talks among themselves about providing financing if AMC decided to file for Chapter 11 court protection, Bloomberg reported in October. A so-called debtor-in-possession loan would allow the company to keep operating through its restructuring.

The group includes investment firms Apollo Global Management Inc., Ares Management Corp., Davidson Kempner Capital Management and Canyon Capital Advisors, according to people with knowledge of the situation. The bankruptcy loan is being discussed around $1 billion, but could change based on the company’s future financial needs and performance, said the people.

AMC Advisers

Representatives from the firms declined to comment or didn’t immediately provide a comment on the situation. They are getting advice from lawyers at Gibson Dunn & Crutcher and bankers at Greenhill & Co. The company has been working with investment bankers at Moelis & Co. and lawyers at Weil, Gotshal & Manges.

AMC’s continued liquidity troubles come with few signs emerging that cinema attendance will recover soon. Despite enthusiasm about vaccines rolling out, it will take until well into the second quarter of 2021 for a critical mass of moviegoers to be inoculated -- and they might still be skittish about filling theaters.

Moves by Hollywood production studios augur poorly as well. AT&T Inc.’s Warner Bros. shocked the industry last week when it said all 17 of its planned major releases in 2021 will debut simultaneously on the company’s HBO Max streaming platform and in theaters. AMC responded that it would urgently talk with WarnerMedia about “economic terms that preserve our business.”

©2020 Bloomberg L.P.

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