As the fall of the COVID-19 pandemic shadow begins to lift, a dormant sector sees the first glowing embers of hope – the entertainment industry, specifically cinema. A beacon in this murky environment is AMC Entertainment Holdings Inc., the largest movie theater chain worldwide, that is geared up to ride the wave of this box office rebound. The real question, however, is whether their burgeoning debt wall will be a stumbling block in this trajectory.
A box office rebound is on the horizon after more than a year of close-to-empty theaters and despairing losses for AMC. With the rollout of vaccines on a global level, movie enthusiasts are gradually regaining confidence in returning to the communal experience of watching movies on a giant screen – a uniquely timeless experience that even the advent of streaming service giants like Netflix or Amazon Prime haven’t been able to dismantle entirely.
AMC has proved its mettle as a survivor amid the catastrophic impact of the pandemic in 2020. Despite a 91% drop in attendance and a 92% drop in revenue, AMC’s CEO, Adam Aron, has managed to steer the ship with real-time adjustments in operations, strategy, and finance. Capitalizing on Reddit-fueled investor fervor and strategic debt restructuring moves has undoubtedly ensured AMC’s survival and given it a chance to recuperate and capitalize on this resurgence.
However, the multiple financing rounds AMC had to resort to, in order to stay afloat during one of the most challenging years for the film industry, have significantly swelled its debt figures. According to AMC’s regulatory filing, the company debt stands at about $5.5 billion, excluding lease liabilities. AMC also unveiled the possibility of selling about 500 million shares to further extinguish debt but this plan has met with opposition from shareholders, demonstrating the difficulty of this debt-conquering journey.
Despite its debt hurdle, AMC stands to spearhead the resurgence of the movie industry. With popular delayed blockbusters like ‘Black Widow,’ ‘No Time to Die,’ and ‘F9’ finally ready for the big screens, and Hollywood getting back to regular operations, the company could leverage this opportunity to pay down its debt. With its vast geographical reach and theatrical partnerships, AMC not only has repeatedly shown its ability to attract audiences but also secure exclusive early releases, offering them a substantial competitive advantage.
The key to managing this comeback, however, lies in AMC’s ability to walk a fine balance between leveraging the box office surge, managing its debt, and keeping its relationships with both its shareholders and partners invigorated. A close eye on maintaining cost efficiencies, renegotiating lease agreements, and careful examination of capital expenditure projects should aid AMC in offsetting the financial burden to a significant extent even as they strike the iron hot on the box office front.
At the crux of it, there is more than a spark of hope for AMC – the landscapes are shifting favorably albeit with the massive albatross of debt around its neck. The box-office rebound could be the lifeboat that AMC needs to not just survive but navigate to calmer and more prosperous waters, provided it manages its debt smartly and strategically.
