Monday, May 04, 2020

COVID-19 and the Plight of the American Movie Theater

By Bill Siegel


Americans have been going to the movies for more than a century, but for the first time in recent history, theaters are closed, and even if they open in the foreseeable future -- the audience may be limited.  With this in mind, many of our treasured movie theaters are facing bankruptcy.

 

Cinemex

Cinemex Holdings USA, Inc. and Cinemex USA Real Estate Holdings are the first of what could be many major theater bankruptcies.  After laying off its nearly 17,500 employees, it had no choice but to seek bankruptcy protection and reorganize under Chapter 11 in Miami, Florida. In a statement, Cinemex announced that it simply could not continue in light of the “total suspension of our business” caused by the COVID-19 pandemic.

 

AMC

AMC theaters may be next in line.  Prior to COVID 19, shares of AMC Entertainment Holdings Inc, were trading as high as $15.26 per share.  On May 1, 2020 its shares were trading at $4.57 per share as it deals with closed theatres (630 in the U.S and 1,000 worldwide), thousands of furloughed employees (25,000), and the sharp reduction of salaries of its senior executives. 

Most analysts feel that theaters may not open until mid-August and even if before, the audiences may be small  because of lower demand or because social distancing requirements may restrict capacities.  Estimates are that with no revenue coming in, AMC’s burn rate is $155 million a month, which analysts estimate could keep it alive until June or July. 

To avoid bankruptcy, AMC announced plans to raise $500 million, which would permit it to survive into the Fall and address its liquidity issues.  Yet, despite these efforts, Wall Street analysts anticipate that a Chapter 11 bankruptcy filing is increasingly likely as AMC stock continues to be downgraded.  Plus, it is becoming presumably more difficult to seek financing outside of a bankruptcy filing.  By filing bankruptcy, lenders may be more likely to provide financing per a court order but, as in many bankruptcies this size, AMC may have no choice but to sell its assets or convert debt to equity as opposed to truly reorganizing and restructuring its debt.

Further fueling a bankruptcy concern, AMC announced that it would cease paying rents to landlords effective April as its liquidity continues to shrink.  Though sympathetic, landlords cannot wait months and months to start receiving their rents.  Afterall, they have lenders too. 

 

Final Scene?

Bottom line, perhaps as Cinemex and AMC go, so go other movie theaters.  The future of movie theaters in the age of COVID-19 remains uncertain. Just as times are changing in retail and there will be a new model for that sector, there will also be a new model in the movie theater business.  All we can do is wait and see as we are in uncharted waters.

See our COVID-19 Quick Reference page for additional articles.

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