Theater chain AMC casts doubt on its ability to survive

Theater chain AMC Entertainment Holdings Inc. is seeking to tame its debt load by asking subordinated bondholders to accept cuts of about 50% from full face value on existing debt.

The company, which has been hit hard as the coronavirus pandemic forced it to shutter theaters across the country, announced the exchange offer in a regulatory filing Wednesday. The swap targets four subordinated notes, which sit below all other debt in line for repayment. The three dollar-denominated bonds are trading at deeply distressed levels in the range of 26 to 27 cents on the dollar, according to Trace data.

AMC also cast doubt on its ability to continue as a going concern for a “reasonable period of time” and said it may struggle to pay its debt obligations as the COVID-19 pandemic squeezes entertainment and leisure businesses. It doesn’t expect to continue dividend payments and said it will seek federal support under the Cares Act.

The firm is asking investors to to take a haircut ranging from about 47 to 51 cents on the dollar, depending on the bond issue and when investors turn in their securities. Investors would receive new 12% second-lien secured notes due 2026 that could pay interest in either cash or payment-in-kind through additional debt.

The early deadline, with more favorable terms for investors, is 5 p.m. in New York on June 16. The final deadline is 11:59 p.m. on June 30.

AMC is the biggest movie theater chain in the U.S. and Europe with about 1,000 theaters and 11,000 screens across the globe, according to its website. It was forced to close all of its approximately 600 U.S. locations in March after public officials placed limits on public gatherings to prevent the spread of the virus.

If enough bondholders turn in their notes, the exchange could potentially replace about $2.3 billion of subordinated debt with $1.2 billion of new second-lien secured debt, Bloomberg Intelligence analyst Mike Campellone wrote in a report on Wednesday.

The exchange, combined with new bonds the firm sold in April, could help AMC lower is total debt burden to around $4.7 billion from $5.3 billion at the end of March.

“Credit concerns for AMC will persist in our view, even if the company is successful in executing balance-sheet maneuvers that could reduce total debt obligations by $597 million,” Campellone wrote, highlighting increasing leverage, a measure of earnings to debt, and liquidity concerns.