AMC Entertainment has secured a $100 million lifeline from Mudrick Capital Management as the cash-strapped theater chain is grappling with the financial fallout from the pandemic-led closures of its businesses. Shares rose 1% in Monday’s pre-market trading.
As part of the transaction, AMC (AMC) has entered into a commitment letter for Mudrick Capital, a current debtholder, to buy $100 million in aggregate principal amount of new lien notes due 2026, which will bear cash interest at a rate of 15% per annum payable semi-annually. In addition, Mudrick will also exchange $100 million of the company’s debt into stock. AMC has committed to issue an aggregate of 21,978,022 shares of its Class A common stock in a private placement.
Meanwhile, the theater operator warned that it expects its existing cash reserves to run out during January 2021. To remain viable through 2021, AMC currently estimates that it will need at least $750 million of additional liquidity to fund its cash requirements.
“Given the uncertainty regarding our ability to raise material amounts of additional liquidity and the uncertainty as to the time at which attendance levels might normalize, substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period of time,” AMC stated in an SEC filing. “A significant spike in coronavirus cases, together with delays of major movie releases or the direct or simultaneous release of movie titles to the home video or streaming markets in lieu of theatre exhibition, have led to theatre closures, prevented the opening of theatres in major markets and have had, and are expected to continue to have in the future, a material adverse impact on theatre attendance levels and our business.”
“These challenges have been exacerbated by the announcement by Warner Bros. that its entire studio film slate for 2021 will move to simultaneous release, which may result in other studios adopting a similar strategy,” the company added.
As of November 30, AMC had $320 million in cash and cash equivalents compared to $417.9 million at the end of September. Between October 1 and November 30, the company received net proceeds of about $152.4 million from prior at-the-market equity offerings. Excluding the proceeds raised from the offerings, this represents an average monthly cash burn rate of about $125 million during October and November, AMC stated.
Shares in AMC have been hit hard and have tanked 46% so far this year, with analysts taking a cautiously bearish outlook on the stock. The Moderate Sell consensus shows 4 recent Holds versus 2 Sells. Meanwhile, the average analyst price target stands at $2.51 and implies 36% downside potential over the coming year.
Wedbush analyst Michael Pachter, who earlier this month reiterated a Hold rating on the stock with a $2.50 price target, doesn’t expect theater attendance levels to begin to normalize until mid -2021.
“AMC remains the highest risk in the exhibition space given its high debt and low available liquidity, resulting in a higher probability that the company will ultimately need to restructure,” Pachter commented in a note to investors. “Should AMC make it through the next several months – until a vaccine is widely distributed – it will certainly be in a difficult position as it then faces substantially more debt to repay than when the pandemic began. It will be years before AMC is able to revisit its prior growth strategy, in our view.” (See AMC stock analysis on TipRanks)
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