Wanda’s AMC Facing Imminent Default as COVID-19 Empties Movie Theatres

American movie theatre chain AMC Entertainment Holdings Inc is said to be close to bankruptcy, eight years after Chinese conglomerate Dalian Wanda bought the Kansas-based company for $2.6 billion.

Shares in the NYSE-listed firm closed down 20 percent to $2.08 at the end of trading yesterday, off the back of Wall Street analyst Eric Wold’s comments that bankruptcy looked increasingly likely for the largest theatre chain in North America, with ratings agency S&P downgrading the company from “highly speculative” to “default imminent, with little prospect for recovery”.

The reports of the looming financial collapse of AMC Entertainment, which is 38 percent owned by Wanda, comes just under three weeks after it furloughed all 24,000 of its US staff, including CEO Adam Aron, following the American government’s enforced closure of cinemas to halt the spread of COVID-19.

Buckling Under $5B Debt Pile

“We continue to believe that AMC has minimal liquidity options to make it through an extended theatrical shutdown period even with the recently reported decision to no longer pay rent on its theatres,” Wold wrote in an investors note.

Wold’s comments followed a New York Post story that AMC is in talks with bankruptcy law firm Weil Gotshal & Manges, with other US media accounts reporting that the company had sent letters to landlords at the end of last month saying it would not be able to meet rental payments until theatres reopened.

The analyst with investment bank B. Riley FBR told investors that AMC’s high debt load made it unlikely that the company would be able to refinance, after the company had been shedding cash even before the pandemic, logging net losses for three of last year’s four quarterly reporting periods

“At the end of 2019, AMC’s balance sheet had $265 million in cash and $4.85 billion in debt — with additional liquidity under its domestic and European revolving credit facilities totaling about $332 million,” Wold wrote.

The media and entertainment specialist noted that it was “unlikely that AMC would be able to secure any additional availability on those credit facilities or that additional debt sources would be made available”, while adding that the $250 million paid AMC has to pay in rent each financial quarter cannot be deferred.

Fading Hollywood Dreams

In 2012, Wanda had purchased 100 percent of the equity in AMC, which has over one thousand theatres worldwide and recorded $5.5 billion in revenue last year, as part of its global expansion into entertainment and maintained an 80 percent stake after the company’s $1.7 billion IPO in 2013.

Wanda then bought out rival Carmike Cinemas in a $1.1 billion all cash deal as well as London-based Odeon & UCI Cinemas Group for $1.2 billion in 2016 to make AMC the largest movie theatre company in the world.

Purchasing AMC eight years ago was one of the first steps in billionaire Wang Jianlin’s attempt to dominate the movie industry globally, which also included flying John Travolta, Leonardo DiCaprio and other film stars to Qingdao, China in 2013 for the launch of a movie studio touted as a as a $7.4 billion investment.

In 2016, Wanda bought US movie maker Legendary Entertainment for a reported $3.5 billion, but has yet to see the production house become profitable. In 2018, Reuters reported that Wanda was hoping to sell a minority stake in Legendary, but no transaction has taken place to date.

By 2017, the mainland mall developer was forced to sell off the 30 film and TV sound stages it built at its Qingdao Movie Metropolis entertainment to rival Sunac China Holding as part of a deal that saw the Hong Kong-listed developer by a 91 percent stake in Wanda’s 13 theme park-based development projects for RMB 43.8 billion.

Global Ambitions Head Down Sunset Boulevard

Wang Jianlin was forced to scale back his Hollywood ambitions after Chinese authorities cracked down on debt-fueled cross-border investments in 2017, with the stake in AMC standing as one of Wanda’s few remaining overseas prizes.

Last year, the group trimmed down its stake in the cinema chain to 38 percent after reaching a $600 million agreement with private equity firm Silver Lake. Under that deal, AMC bought back 24 million shares from Dalian Wanda Group and issued $600 million worth of convertible notes to Silver Lake.

With Wanda straining under a mounting debt burden – with a reported RMB 39.8 billion ($5.7 billion) of its bonds due this year – the company’s sports and entertainment unit agreed to sell its Ironman franchise just last month in an all-cash deal worth $730 million, after buying it for $650 million in 2015.

In November of 2018 Dalian Wanda sold one of the last of its US real estate projects, an eight acre (32,375 square metre) site along Wilshire Boulevard in Beverly Hills for a reported $420 million, while in January of that year the company had parted with its still unfinished billion-dollar development project in London’s Nine Elms at a loss of nearly £30 million.