As the pandemic continues, and businesses around the country remain close, it appears more and more likely that a Chapter 11 bankruptcy is on the way for AMC Theatres, the largest movie theater chain in North America. AMC locations have been closed for about a month now and the company has furloughed each and every one of its 600 corporate employees, including CEO Adam Aron. Thats not going to be enough, however, as Wall Street analyst Eric Handler, of MKM Partners, has downgraded AMC stocks from neutral to sell.
Based on our view that theaters will be closed until at least August and our belief that AMC lacks the liquidity to stay afloat during that time, we expect the company will soon be faced with filing for bankruptcy, Handler said in a report on Thursday. Further fueling our liquidity concerns is AMCs decision to stop paying rents to landlords.
If Chapter 11 bankruptcy is filed, AMC will be on a clear path to restructuring, in the hopes of salvaging the company as theaters begin to reopen later this year. Even if AMC gets in on government bailout funds, Handler believes that the filing is a foregone conclusion at this point. We believe the weight of its balance sheet will make for tough sledding given the companys high leverage, thus making reorganization inevitable, he said.
Based on AMCs current assets and credit, the company had about $600 million when this began, a well that is going to run dry sooner, rather than later. We believe the companys monthly cash burn rate in a no-revenue environment is running at $155 million per month, which likely keeps AMC liquid until June/July, Handler added.
One major problem facing theater chains like AMC and Regal is figuring out exactly when they are going to be able to reopen. Wall Street is estimating that theaters wont be operational until August, but some studios clearly believe that things will be back to normal sooner than that. Disney still has Pixars Soul set to arrive in June, with a July premiere planned for the live-action Mulan. Its really anyones guess at this point.
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