The pandemic has devastated many industries. (Click to see a list of 30 companies that have gone under in 2020, compiled by CNN.) Many movie theaters have been closed since Spring of 2020. Concerts have been postponed, while sporting events have limited or no live audiences.
Can Movie Theaters and Live Entertainment Make It?
On December 10, 2020, AMC Entertainment Holdings, Inc. admitted that if the company can’t raise $750 million, they might be forced into bankruptcy as early as January 2021. In the SEC filing, AMC wrote, "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."
AMC's revenue is down -92% in the U.S. and -86% internationally. Live Nation (concerts), Madison Square Garden Sports and Cinemark Holdings (movies) have all seen revenue implode to 10% or less of where sales stood a year ago. By contrast, Netflix revenue is up 23%. Amazon which is benefitting from all things from home, including streaming, saw sales soar 37% in the most recent quarter.
The problems for AMC (and other theater and live entertainment chains) are many-fold. In addition to having almost no money coming in, companies must prioritize which bills to pay, in the hopes of staying alive until people can have fun again. As AMC put it in their SEC filing, “In order to avoid bankruptcy, [we] must reach accommodations with [our] landlords to abate or defer a substantial portion of the Company’s rent obligations.” Liquidity challenges and a stalemate in the negotiations could force AMC to cease paying rent, which would then snowball into an involuntary insolvency proceeding.
No one wants that to happen. If AMC declares bankruptcy, the stock will likely become worthless, and bondholders will take a haircut on their principal.
Stocks and Bonds
On December 11, 2020, AMC announced that the company would raise $100 million with first lien notes at 15-17% interest. Goldman Sachs is running an at-the-market equity offering of up to 178 million shares. Together, if both capital campaigns are successful, it is possible that AMC will raise enough cash to meet their $750 million threshold.
How long will that liquidity last? The 4th quarter lock-downs aren’t going to help revenue any. Will a vaccine inspire moviegoers to return en masse to movies, or have entertainment habits fundamentally changed for the foreseeable future? These are all questions that must be answered adequately before sophisticated stock and bond investors will be convinced to jump in.
Are Theaters Doomed?
When will people be comfortable sitting with strangers in an enclosed space to watch movies that they can now watch (safely) from home? On December 3, 2020, Warner Bros. announced that their 2021 movie schedule would be streamed on HBO Max simultaneously with the theater release. If other studios follow suit that could easily be a death knell for theater chains.
AMC Shares are still down by half from their February 2020 highs of $8.78. However, AMC is has also doubled from the March 23, 2020 low of $1.95, as have most of the companies listed in the above Stock Report Card. Live Nation has recovered almost all of its pandemic valuation losses. Wall Street is benefitting from the Federal Reserve Rally. Investors are betting that things will go back to normal after the vaccine.
However, as you can see from the above Stock Report Card, companies in the industries most severely impacted by the Stay-at-Home Orders may have trouble operating through the crisis and hanging on until that vision of that better tomorrow becomes a reality. On October 1, 2020 S&P Global downgraded AMC Entertainment to CCC- with a negative outlook.
AMC Entertainment’s troubles are not limited to that one company. There are many industries and companies that were overleveraged with slow or negative revenue growth before the pandemic hit. (Have you read my blog, “Is Your Bank a Junk Bond?”) While everyone is drunk on the rally, it’s a good idea to sober up and remember how things looked and felt in March of this year. If you were worried then, it will pay to look past the headlines and into the fundamentals of what a healthy nest egg and investment strategy look like. Yes, a vaccine is going to help us all get past this pandemic. However, the best-case scenario has already been overpriced into equities.
Our team can help. Market timing isn’t a strategy. A well-designed plan protects your wealth, while properly diversifying the appropriate amount of your at-risk money. Call 310-430-2397 or email info@NataliePace.com to learn more now.
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25/1/2021 11:12:05 am
$AMC has more doubled this year, after raising a billion & staving off bankruptcy for now. However, the company is still in trouble. Learn more in this blog.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.