Investors who took a risk lending money to the world’s largest cinema operator in April are facing losses after the deepening coronavirus crisis wiped more than $175m from the value of the bond.
AMC Entertainment, which runs AMC Theatres in the US and Odeon in the UK, has suffered severe strain as global lockdowns and social distancing measures have hit attendance at its cinemas.
The company managed in April to borrow $500m in the bond markets, luring investors with a 10.5 per cent interest rate. But growing concerns over the company’s survival have since driven the bond down to about 65 cents on the dollar, making it one of the worst-performing rescue financings from the early days of the pandemic.
“The bonds are telling me they are in trouble,” said John Dixon, a high-yield bond trader at Dinosaur Financial Group. “Ultimately I think this company is headed for bankruptcy. They just have too much debt.”
S&P downgraded AMC’s credit rating two notches to triple C minus at the beginning of this month, one of the lowest rungs on the ladder. The rating agency expects the company to run out of cash within six months as it burns through more than $100m a month.
“Now that the majority of its theaters are open and box-office receipts remain weak, we expect the company’s cash burn will remain elevated and could accelerate further over the remainder of 2020 unless there is a significant improvement in attendance levels relative to the September box office,” S&P said.
AMC did not respond to a request for comment.
Canadian asset manager Canso Investment Counsel and German insurance group Allianz are among the largest holders of the debt, according to Bloomberg data, though the bond makes up a relatively small part of the funds’ portfolios.
The $3.8bn Lysander-Canso Corporate Value Bond Fund is among the most exposed at 1.2 per cent of its assets under management, losing roughly $14m on its $40m holding, according to data from Bloomberg and Morningstar. Canso said it did not comment on its holdings.
AMC said on Tuesday that it had no plans to close cinemas despite the postponement of several big blockbusters. One day earlier, its rival Cineworld said it would shut all of its UK and US cinemas following the delay of the new James Bond film No Time To Die until April next year.
Mooky Greidinger, Cineworld’s chief executive, told the Financial Times that he had taken the decision to close the group’s cinemas because without blockbusters, “we lose more from being open than we are losing when we are closed”.
AMC made a deal over the summer with Universal that allows the studio to move its films to streaming after 17 days on the big screen — a dramatic cut from the usual run of about 90 days — with the cinema group receiving a portion of revenues from the on-demand platform. Adam Aron, AMC’s chief executive, said the deal “puts [us] in a position where we can open our theatres when others may feel the need to close”.