AMC Bonds Fall Despite Theater Reopenings

Investors are dumping bonds tied to the world's biggest movie theater chain, betting that attendance will remain low despite venues reopening in major markets.

The price on AMC Entertainment Holdings Inc.'s (AMC) $1.4 billion bond due June 2026 dropped below 10 cents on the dollar this week, according to MarketAxess, implying creditors believe they aren't very likely to get paid back. The company's $500 million bond due April 2025 was quoted around 61.25 cents on the dollar as of Wednesday, down from 91 cents in early September.

The declines contrast with the early-week bounce in AMC's stock. Shares rose more than 16% on Monday following the company's announcement that it would open a dozen locations in New York state at 25% capacity. A day later, the company said it would sell $50 million in shares to bolster its balance sheet. Shares have since retreated, but rose 1% midday Thursday to $3.03.

But bond investors, who typically focus on a borrower's ability to pay their bills and interest payments, remain pessimistic. Analysts say the company is burning more than $100 million a month, and that this week's capital raise does little to change that. Without new attractions to wrangle moviegoers from their couches, Matt Zloto, an analyst at CreditSights, says AMC is in danger of running out of cash by early next year.

"When you look at the theatrical slate, it's just going to be difficult to get people into theaters," he said. "And when theaters are open, there are fixed costs no matter how many people come in the door, from people checking tickets to cleaning theaters."

A spokesman for AMC didn't immediately comment. The company has warned investors in recent filings that it could run out of cash by early 2021.

These barriers have taken a toll on the debt prices of AMC's competitors as well. Bonds tied to Cinemark Holdings Inc., which runs more than 300 theaters across America, also have dropped in recent months. The company's $755 million note due June 2023 was quoted at 84.75 cents on the dollar as of Wednesday, down from 94.25 cents in early September.

Movie-theater operators across the country are facing a serious financial strain as pandemic-related capacity restrictions and a lack of high-profile movies leave theaters mostly empty. Hollywood studios delayed many of this year's big blockbusters films -- including "Dune" and a new James Bond movie -- after Warner Bros.' "Tenet" struggled at the U.S. box office without access to major markets such as New York City and Los Angeles.

Studios are hesitant to release films without those big markets, fearing low ticket sales. But postponing releases raises the risk of permanent closure for many of the theaters the studios rely on. Earlier this month, Cineworld Group PLC's Regal Entertainment Group suspended operations at U.S. theaters, walking back an initial August reopening, citing an absence of film releases and restrictions in states such as California and New York.

Some analysts believe the U.S. movie-theater industry was facing challenges even before the pandemic, after cheap credit fueled a multidecade construction boom, leaving the market inundated with hundreds of new screens. AMC entered the pandemic with $4.9 billion in debt, according to company filings, the largest amount among theater chains.

Elsewhere in debt markets, yields on long-term U.S. government bonds headed higher for a fifth consecutive session after Labor Department data showed the number of Americans who filed for unemployment benefits this month fell to the lowest levels since March, a sign of improvement for the U.S. economy.

The yield on the benchmark 10-year Treasury note traded around 0.835% Thursday, according to Tradeweb, up from 0.815% at Wednesday's close. Yields rise when bond prices fall.

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com


  (END) Dow Jones Newswires
  10-22-20 1309ET
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