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AMC Theaters is in Serious Trouble

AMC Theaters is in especially bad shape. The CEO of AMC Theaters expressed hope for theaters to reopen in June. The question has been raised, though, will the largest theater chain in the United States still be around by then? AMC may have to file bankruptcy soon after having to close all of their locations due to the coronavirus. 

Chapter 11

Many industry insiders see AMC as filing Chapter 11 as the death knell for the theater. AMC Theaters is $4.9 billion in debt with a value of $327.3 million. Their stock is alarmingly low, although AMC’s stock has never exactly been big the last few years. 

Not All Hope is Lost

If AMC Theaters does file bankruptcy, that doesn’t automatically mean they won’t ever return. The business could still reopen under Chapter 11. Studios and vendors should help them there in bankruptcy court. Studios don’t expect the end of AMC Theaters. However, if theaters remained closed longer in New York City or other major cities, expect more delays.

Reopening in May?

Most popcorn movies coming out in May have already been delayed. 20-30% of AMC’s revenue comes from a movie’s opening weekend’s box-office toll. They’ll need movies to show when they reopen. That’s why theaters aren’t ecstatic about the idea of studios releasing their summer catalogue on streaming. Believe it or not, AMC is anticipating reopening in May. The company is already talking to studio reps about available titles in May. 

A Letter From AMC to Landlords 

As a result, landlords will suffer because of AMC Theaters’ predicament. The theater chain leases a total of 875 theaters, partially owns 62 theaters. In the US, AMC only has partial interest in seven theaters. Best case scenario, AMC renegotiates with landlords or cuts leases. Starting soon, AMC Theaters plan on ceasing payments to landlords. Here’s a letter sent to landlords explaining the unfortunate decision: 

Dear Landlord:

This letter is to formally advise you that AMC temporarily suspended operation of all of its theatres in the United States (including the theatre referenced above) on March 17, 2020 in response to circumstances beyond AMC’s control and specifically the COVID-19 pandemic and the national state of emergency declared by the President of the United States on March  13, 2020, and in compliance with various federal, state and local government mandates and directives (including those that now limit public gatherings to no more than 10 people and emphasize social distancing). All other major theatre operators in the United States have also closed their theatres.

As the crisis unfolded and movie studios pulled major new releases (significantly reducing film product), AMC took steps to adapt and remain open. AMC proactively reduced capacity by 50% per the initial CDC guidelines, and then to 50 persons per auditorium per revised CDC. Some of the steps AMC has implemented are: (a) making the very difficult decision to furlough over 25,000 employees in the United States, (b) instituting a reduced pay program for theatre General Managers, (c) placing a hold on discretionary capital expenditures, and (d) making significant cost and personnel cuts at AMC’s corporate offices.

The final step AMC is currently taking directly impacts you. Without revenue from its theatres, AMC will cease paying rent and charges under the lease effective as of April, 2020.

AMC asks for your patience and understanding during this difficult time, AMC intends to reopen its theatres as soon as possible after it is safe to do so, AMC looks forward to getting back to business as usual.

AMC intends to advocate at the federal level for appropriate relief for the theatre exhibition and real estate industries, AMC is willing to discuss with you any suggestions you may have for getting through this crisis and planning for when AMC can reopen and pay rent.

Sincerely,

Daniel E. Ellis

Senior Vice-President, Development & International