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Rating Action:

Moody's upgrades AMC's CFR to Caa2 and assigns Caa1 rating to new first-lien notes; outlook positive amid cinema industry's continuing recovery

02 Feb 2022

Approximately $4.8 billion of existing rated debt impacted and $500 million of new debt rated

New York, February 02, 2022 -- Moody's Investors Service ("Moody's") has upgraded AMC Entertainment Holdings, Inc.'s ("AMC" or the "company"): (i) Corporate Family Rating (CFR) to Caa2 from Caa3; (ii) Probability of Default Rating (PDR) to Caa2-PD from Caa3-PD; (iii) senior secured debt ratings to Caa1 from Caa2 (comprising the $225 million revolving credit facility (RCF), $1.95 billion outstanding senior secured term loan facility and $800 million senior secured first-lien notes); and (iv) second-lien secured notes rating to Caa3 from Ca ($1.51 billion outstanding). Moody's also affirmed the Ca ratings on the $290 million outstanding senior subordinated notes given the debts' deeply subordinated position. Concurrent with this rating action, Moody's upgraded the Speculative Grade Liquidity (SGL) rating to SGL-2 from SGL-4 and assigned a Caa1 rating to the proposed $500 million senior secured first-lien notes due 2029 (the "2029 First-Lien Notes"). The outlook was revised to positive from negative.

Net proceeds from the new 2029 First-Lien Notes will be used to prepay the $500 million 10.5% Senior Secured First-Lien Notes due 2025. The 2029 First-Lien Notes will be pari passu with AMC's existing senior secured credit facilities and senior secured first-lien notes. Moody's views the debt refinancing favorably due to the expected interest expense savings and maturity extension.

Following is a summary of today's rating actions:

Assignment:

..Issuer: AMC Entertainment Holdings, Inc.

$500 Million Senior Secured First-Lien Notes due 2029, Assigned Caa1 (LGD3)

Upgrades:

..Issuer: AMC Entertainment Holdings, Inc.

Corporate Family Rating, Upgraded to Caa2 from Caa3

Probability of Default Rating, Upgraded to Caa2-PD from Caa3-PD

$225 Million Senior Secured Revolving Credit Facility due 2024, Upgraded to Caa1 (LGD3) from Caa2 (LGD2)

$2,000 Million ($1,950 Million outstanding) Senior Secured Term Loan B1 due 2026, Upgraded to Caa1 (LGD3) from Caa2 (LGD2)

$500 Million 10.500% Senior Secured First-Lien Notes due 2025, Upgraded to Caa1 (LGD3) from Caa2 (LGD2)

$200 Million 10.5% Senior Secured First-Lien Notes due 2026, Upgraded to Caa1 (LGD3) from Caa2 (LGD2)

$100 Million 10.5% Senior Secured First-Lien Notes due 2026, Upgraded to Caa1 (LGD3) from Caa2 (LGD2)

$1,509 Million 10%/12% Cash/PIK Toggle Second-Lien Subordinated Secured Notes due 2026, Upgraded to Caa3 (LGD5) from Ca (LGD5)

Affirmations:

..Issuer: AMC Entertainment Holdings, Inc.

GBP500 Million (US$ 5.4 Million outstanding) 6.375% Senior Subordinated Notes due 2024, Affirmed at Ca (LGD6)

$600 Million ($98.3 Million outstanding) 5.750% Senior Subordinated Notes due 2025, Affirmed at Ca (LGD6)

$595 Million ($55.6 Million outstanding) 5.875% Senior Subordinated Notes due 2026, Affirmed at Ca (LGD6)

$475 Million ($130.7 Million outstanding) 6.125% Senior Subordinated Notes due 2027, Affirmed at Ca (LGD6)

Speculative Grade Liquidity Actions:

..Issuer: AMC Entertainment Holdings, Inc.

Speculative Grade Liquidity, Upgraded to SGL-2 from SGL-4

Outlook Actions:

..Issuer: AMC Entertainment Holdings, Inc.

Outlook, Changed to Positive from Negative

The assigned rating is subject to review of final documentation and no material change to the size, terms and conditions of the transaction as advised to Moody's. Upon extinguishment of the 10.5% Senior Secured First-Lien Notes due 2025, Moody's will withdraw the rating.

RATINGS RATIONALE

The ratings upgrade reflects Moody's expectation for continuing improvement in AMC's operating performance and liquidity amid growing attendance levels at the global box office combined with our expectation for a strong movie slate in 2022. This will be supported by the planned release of numerous blockbuster and franchise titles as well as Moody's belief that most of the big studios will adhere to the new 45-day theatrical window for major film releases before distribution to video-on-demand (VOD) streaming platforms. Moody's expects the domestic cinema industry will achieve $7.75 - $9 billion in ticket sales this year. However, given AMC's sizable gross debt ($5.5 billion) relative to its disproportionately low expected cash flow generation, risk of a balance sheet restructuring still exists, which heightens governance risk. The SGL-2 rating reflects Moody's expectation for improved liquidity supported by neutral-to-modestly positive free cash flow (FCF) generation that will help sustain high cash balances, which in turn, should alleviate reliance on debt and equity raises to enhance liquidity.

The positive outlook reflects Moody's view that strong pent-up moviegoer demand combined with the upcoming robust movie release schedule and sustained economic expansion will continue to produce increased out-of-home mobility and support organic revenue growth and expanding positive EBITDA and cash flows over the course of the year. Moody's projects US GDP will increase 4.4% in 2022 (4.4% globally) and 2.8% in 2023 (3.2% globally). The outlook also embeds Moody's expectation that AMC will continue to effectively manage operating expenses, which will support profit expansion. Moody's projects AMC's total debt to EBITDA will approach the 8x-9x area over the next 18 months and FCF to debt will be in the -1% to +1% range by year end 2022, increasing to +2% in 2023 (all metrics are Moody's adjusted). While the impact of higher inflation in the economy could pressure margins and moderate revenue growth to some extent due to rising operating expenses and a pullback in consumer spending, Moody's recognizes that the average cost for movie tickets remains one of the most inexpensive forms of out-of-home entertainment.

Except for a handful of AMC's theatres in Finland that remain closed, all of the company's global theatres are currently open. Over the course of 2021, moviegoer attendance gradually improved sequentially (quarter-over-quarter) as a growing percentage of the population received vaccinations against the virus, theatres reopened and resumed operations, government capacity restrictions were eased and lifted, and studios released more new films to theatres, especially major blockbusters during the year end holiday season that led to strong results in Q4 2021. While the domestic box office delivered only $4.5 billion of gross receipts last year, equivalent to around 39% of 2019's ticket sales, during December 2021 box office receipts were 80% of December 2019's receipts, with the last week of December 2021 generating receipts equivalent to 93% of December 2019's final week sales. December 2021's results were driven by strong moviegoer turnout (domestically and globally) for Sony's super-hero action movie Spider-Man: No Way Home and represents a marked improvement from Q1 2021 when domestic receipts were only 10% of Q1 2019's ticket sales.

Given the structural challenges in the cinema industry, changes in consumer movie viewing preferences and increasing number of first-run movies distributed to competing streaming platforms, Moody's does not expect domestic box office receipts in 2022 to return to the industry's high watermark of $11 - $12 billion/annum. However, due to the strong movie slate expected this year, which includes several franchise titles across film genres that generally perform well at the box office (e.g., family-oriented, adaptation, adventure, comic book/super-hero and supernatural), Moody's believes domestic ticket sales can potentially reach $7.75 - $9 billion. The forecast considers the strong box office momentum witnessed in Q4 2021 that should continue into this year. The industry will return to its historical seasonality with the majority of annual revenue generated during the April to early September box office season. There is strong pent-up demand for moviegoing, especially with new blockbuster films expected to debut in 2022, which should enable AMC to return to positive EBITDA and operating cash flows.

With AMC's theatres open, more new films released and a growing number of patrons returning to the cinema, the studios will likely observe the 45-day theatrical window exclusivity for big-budget film releases. The pandemic accelerated the compression of the theatrical window from the previous 60-75 days as a result of mandated theatre closures and strong subscriber growth on studios' streaming platforms. Last year, Warner Bros.' Warner Media subsidiary decided to release its entire slate of 17 films simultaneously in theatres and on its HBO Max streaming platform in the US. This year, WarnerMedia plans to revert to the exclusivity window, a credit positive. Moody's expects Universal, Paramount and Sony will also adhere to the theatrical window. However, the wildcard is Disney, which intends to decide theatrical exclusivity on a case-by-case basis. Disney's films typically represent 35%-40% of total domestic annual movie release volume. The potential exists for Disney to increasingly segregate its film content by producing certain movies specifically designated for its Disney+ streaming platform and other films designated for theatrical release.

AMC's Caa2 CFR is supported by the company's position as the world's largest movie exhibitor and reflects the weak, albeit improving, operating and financial performance, which suffered from pandemic-induced revenue and operating losses in 2020 and 2021, and delayed recovery when economies reopened. While the rating reflects Moody's expectation for improvement in AMC's operating performance, it still embeds Moody's view for a balance sheet restructuring given AMC's untenable debt capital structure, the uncertainty surrounding Disney's adherence to the theatrical window and rising inflation concerns that could dampen moviegoer demand. Assuming AMC maintains close to its current 23% domestic market share, Moody's forecasts AMC will generate positive, albeit weak, EBITDA and neutral-to-modestly positive FCF (Moody's adjusted) in 2022.

Conversely, the rating captures: (i) the cinema industry's excess screen capacity in North America, which will eventually require reduction; (ii) comparatively lower moviegoer demand as studios simultaneously release some films online via SVOD/PVOD or release them downstream in a shortened theatrical window; (iii) lower theatrical release volumes relative to historical levels; (iv) reduced show times compared to pre-pandemic periods; and (v) the impact from some cost-conscious consumers reducing their out-of-home entertainment and number of trips to the cinema amid affordable subscription-based VOD movie viewing. The rating also considers AMC's elevated financial leverage, which Moody's expects to decrease to the 8x-9x range (Moody's adjusted) over the rating horizon, and inability to meaningfully repay debt given the sizable interest burden that dampens FCF generation.

Over the next 12-15 months, Moody's expects AMC to maintain good liquidity (SGL-2) supported by slightly positive FCF generation projected in the $10 - $25 million range (pressured by a high interest burden) and sizable cash balances, which totaled roughly $1.6 billion at 30 September 2021. Cash levels have remained above $1.6 billion in recent quarters as a result of AMC's diminishing cash burn, which we expect to moderate this year. From January 2020 through September 2021, cumulative negative FCF totaled just over -$2 billion. Since April 2020, AMC has enhanced its liquidity position via several At-The-Market (ATM) new equity raises and debt issuances totaling $3.4 billion (before commission and fees). Liquidity is further supported by an undrawn $225 million RCF maturing April 2024.

The RCF has a springing maximum net senior secured leverage covenant of 6x that becomes applicable when more than 35% of the facility is drawn. AMC previously obtained relief for this covenant through the quarter ending 31 March 2022. In December 2021, the company extended covenant relief through 31 March 2023. Prior to expiration of the waiver period, we will closely monitor the covenant cushion. AMC is currently subject to minimum liquidity requirements of approximately $145 million, of which $100 million is required under the conditions for the extended Covenant Suspension Period, as amended, under the RCF, and GBP32.5 million (equivalent to approximately $44 million) under the $560.3 million Odeon Term Loan Facility (unrated) maturing August 2023.

ESG CONSIDERATIONS

Moody's expects AMC's governance to remain weak. Despite improving operating performance projected over the rating horizon, the rating incorporates governance risks, specifically the likelihood that leverage will remain above 8x over the next two years given the company's profitability challenges resulting from the pandemic and continued secular pressures facing the cinema industry. Governance risk also reflects the potential for a balance sheet restructuring to the extent gross debt and interest expense remain disproportionately elevated relative to earnings.

STRUCTURAL CONSIDERATIONS

The Caa1 ratings on the senior secured bank credit facilities and senior secured first-lien notes are one notch lower than the outcome from our Loss Given Default (LGD) model to reflect the continued operating and financial challenges facing the company, including its unsustainable debt capital structure. The ratings also reflect the obligations' priority position in AMC's capital structure versus the second-lien notes, which are rated Caa3. The Ca ratings on the senior subordinated notes reflect the low anticipated recovery prospects given their junior position relative to a sizeable amount of first-lien and second-lien debt ahead of them.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be upgraded if AMC experiences positive growth in box office attendance, stable-to-improving market share, positive and expanding EBITDA with margins approaching pre-pandemic levels and enhanced liquidity; and exhibits prudent financial policies that translate into an improved credit profile. An upgrade would also be considered if financial leverage as measured by total debt to EBITDA approaches the 8.5x area (Moody's adjusted) and free cash flow as a percentage of total debt improves to the -1% to +1% range (Moody's adjusted).

Ratings could be downgraded if there was: (i) an exhaustion of the company's liquidity or an inability to access additional sources of liquidity to cover cash outlays; (ii) poor execution on reducing or managing operating expenses; or (iii) limited prospects for operating performance recovery in 2022. A downgrade could also be considered if Moody's expects total debt to EBITDA to remain above 9x (Moody's adjusted) or free cash flow to remain negative on a sustained basis. Ratings could also be downgraded if Moody's expects AMC will pursue a balance sheet restructuring.

Headquartered in Leawood, Kansas, AMC Entertainment Holdings, Inc. is the largest movie exhibitor in the US and globally, operating 947 movie theatres with 10,575 screens in 15 countries across the US, Europe and the Middle East. Revenue totaled approximately $1.5 billion for the twelve months ended 30 September 2021.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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 have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory A. Fraser, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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