New York, June 19, 2012 -- Moody's Investors Service changed the rating of AMC Entertainment,
Inc. (AMC Entertainment) to stable from negative and affirmed its
B2 corporate family and probability of default ratings, as well
as all other instrument ratings as shown below.
AMC Entertainment Inc.
....Outlook, Changed To Stable From
Negative
.... Affirmed B2 Corporate Family Rating
.... Affirmed B2 Probability of Default Rating
.... Affirmed SGL-1 Speculative Grade
Liquidity Rating
.... Senior Secured Bank Credit Facility,
Affirmed Ba2, LGD adjusted to LGD2, 16% from LGD2,
13%
.... 8.75% senior unsec bonds
due June 2019, Affirmed B2, LGD adjusted to LGD4, 55%
from LGD3, 48%
.... 9.75% Sr Sub Notes due
Dec 2020, Affirmed Caa1, LGD adjusted LGD5, 87%
from LGD5, 81%
.... 8% Sr Sub notes due March 2014,
Affirmed Caa1, LGD adjusted LGD5, 87% from LGD5,
81%
RATINGS RATIONALE
Expectations for a stronger credit and operating profile following the
proposed acquisition of AMC Entertainment by Dalian Wanda Group Co.
Ltd. (Wanda, unrated), as well as improved performance
drove the outlook revision.
AMC Entertainment intends to redeem all of its outstanding 8% senior
subordinated notes (approximately $140 million outstanding following
its tender activity throughout early 2012) with a combination of balance
sheet cash and a $50 million cash equity contribution from Wanda,
which would reduce leverage to the low 7 times range from the mid 7 times
range based on results for the year ended March 31, 2012.
Furthermore, Wanda has committed to investing $500 million
in AMC's operations over time ($450 million remaining after
the $50 million earmarked for debt reduction). Moody's
believes the incremental cash could accelerate growth and lead to lower
leverage due to higher EBITDA, or be used for incremental debt paydown,
either of which would improve AMC's credit profile. Also,
given Wanda's existing cinema, real estate, and entertainment
related assets in China, Moody's considers the company a strategic
owner and a positive for the credit compared to the existing private equity
sponsors, which had been seeking an exit from the company (as indicated
by initial public offering filings in December 2006, September 2007,
and July 2010).
AMC Entertainment's B2 corporate family rating continues to incorporate
its aggressive capital structure, with leverage above 7 times debt-to-EBITDA
and minimal free cash flow. This credit profile poses challenge
for operating in an inherently volatile industry reliant on movie studios
for product to drive the attendance that leads to cash flow from admissions
and concessions. However, very good liquidity enables the
company to better manage the attendance related volatility. Also,
Wanda's commitment to invest cash in the company could boost growth
and mitigates some of the risk related to AMC Entertainment's plan
to expand its dine-in theaters. Scale and geographic diversification,
which could be enhanced with the Wanda ownership, also support the
rating. Moody's consider theatrical exhibition a mature industry
with low-to-negative growth potential, high fixed
costs and increasing competition from alternative media, and expects
attendance growth will continue to lag behind population growth over the
long term, with year to year volatility driven by the popularity
of the films. However, the industry remains viable and stable
throughout economic cycles.
The stable outlook incorporates expectations for positive free cash flow,
net of any cash equity from Wanda used for capital expenditures rather
than debt repayment, and leverage sustained in the low 7 times range.
The outlook also assumes maintenance of a good liquidity profile and EBITDA
margins in the low 30% range.
The magnitude of improvement in credit metrics required to sustain a higher
rating impedes upward ratings potential. However, Moody's
would consider a positive rating action with expectations for sustained
leverage below 6 times debt-to-EBITDA, along with
maintenance of good liquidity and continued positive free cash flow.
An upgrade would also require evidence that the company's strategy
of expanding food and beverage options and seating upgrades is contributing
positively to free cash flow.
Expectations for sustained negative free cash flow, erosion of the
liquidity profile, or inability to achieve and sustain leverage
in the low 7 times debt-to-EBITDA range could results in
a downgrade. While unexpected over the next several years,
incremental debt or distribution of cash to Wanda would also likely have
negative ratings implications.
AMC's ratings were assigned by evaluating factors that Moody's considers
relevant to the credit profile of the issuer, such as the company's
(i) business risk and competitive position compared with others within
the industry; (ii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. Moody's compared
these attributes against other issuers both within and outside AMC's
core industry and believes AMC's ratings are comparable to those
of other issuers with similar credit risk. Other methodologies
used include Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies. Headquartered in Kansas City,
Missouri, AMC Entertainment operates 346 theaters with 5,034
screens, primarily in the United States and Canada. Its revenue
for the fiscal year ended March 31, 2012, was approximately
$2.6 billion.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
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uses in assigning a rating is of sufficient quality and from sources Moody's
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information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
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for the last rating action and the rating history. The date on
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Consequently, Moody's provides a date that it believes is
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for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Karen Berckmann
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes AMC Entertainment outlook to stable, affirms B2 CFR
