AMC Entertainment Holdings Inc. (NYSE: AMC) has lost more than 60% of its value in the past year. The restricted social life and cancellation of high-profile premieres caused losses. However, the New Year is unlikely to bring much improvement. Although deferred demand is strong, AMC Entertainment is unlikely to achieve its financial target in the short to medium term.
AMC Entertainment is facing the possibility of bankruptcy. The company’s management warned in October 2020 that it would likely have to initiate bankruptcy proceedings by early 2021 if it did not receive additional funding. AMC Entertainment’s creditors asked the company to declare bankruptcy in December. As early as 2021, management stated that the company would need to raise $550 million to remain afloat. On Monday, January 25, the company announced that it had raised more than $900 million of its own money and company loans, which will provide some support ($506 million from the sale of shares and $411 million of new debt). This indicates that AMC Entertainment won’t run into financial difficulty anytime soon.
As a result, AMC Entertainment (AMC) may have to sell more shares or obtain additional loans to receive additional funds. Around 107 million shares of AMC Entertainment were outstanding in the third quarter. One hundred thirty-seven million shares were outstanding by the end of October. On December 11, the company applied for the sale of 200 million shares, followed by 50 million shares on December 30, but no information has been released on whether those shares were eventually sold. This means that the number of shares of AMC doubled in just one quarter.
AMC Entertainment does not have an easy time obtaining credits. Due to the high percentage of loan recovery – around 10 -14 % – lenders view it as a high-risk borrower. Investing in growth becomes more difficult because of high payouts and reduced resources available in the long run. It’s worth mentioning that although AMC Entertainment had a good year in 2019, it’s operating profit was only about $300 million, which is much less than the amount it has already borrowed. AMC Entertainment will therefore need to perform better than it did last year to service its debt. Does this sound doable? It is a complex question, as the film industry is no longer the exclusive quality cinema supplier. Furthermore, the premiere window for a new film has narrowed under pressure from the streaming services. The screening period in cinemas, which used to be about two months, is now sometimes reduced to two weeks in some cases.
This creates uncertainty regarding AMC Entertainment’s prospects. Deferred demand is perceived as ambivalent by analysts. Many people believe that those exhausted by the pandemic and feeling isolated will begin to exhibit high social activity. Contrary to this, some believe the long-term pandemic has permanently changed consumer behavior, and the previous social activity cannot return. As a result, attendance may be lower than AMC Entertainment (AMC) anticipates. However, in any case, AMC Entertainment is waiting to see if viewers return to the theater to find out what it will look like in the future.
