AMC's Moody blues

Investors firm downgrades exhib's credit rating

By DAVE MCNARY

Moody’s Investors Service, citing the bleak outlook for exhibitors, has lowered ratings for AMC Entertainment’s debt and warned that further downgrades may be coming.

“The downgrades reflect the company’s deteriorating credit profile over the last year, coupled with Moody’s expectations of continued weak operating performance and diminishing financial flexibility over the intermediate term,” the agency’s Pamela Stumpp said.

Moody’s warned that AMC operating profits are “insufficient” to cover the costs of the debt it took on to lead the industry’s charge into megaplexing. “While the company’s new theaters are generally performing well, Moody’s remains concerned that many are just too big and carry excessive fixed cost structures relative to the industry’s business dynamics,” Stumpp said.

Moody’s made the announcement after the stock market closed Friday. Stock of AMC, which was trading over $15 a year ago, was up 37.5¢ to $4.375.

Not a surprise

Rich Ingrassia, an analyst with Paul Kagan Associates, said the downgrades were not a surprise, since profit margins have been either stagnant or declining at all major chains. “It’s a little early to be ringing alarm bells, but we are likely to see significant consolidation soon,” he added.

AMC launched its first megaplex with a 24-screen facility in Dallas in 1995, setting off a scramble among rivals to match a breakneck pace by building lavish facilities at a price of as much as $1 million per screen. The changing landscape has created a glut of older theater complexes, heavy debt loads and dwindling profits.

AMC operates more than 2,900 screens with 60% of those in megaplexes. It posted an $8.9 million loss on revenues of $285 million in its third quarter ended Dec. 31.

Difficult environment

"The company’s theaters continue to suffer from the difficult operating environment that is affecting the overall industry activity, including heightened competition, shorter average film lives and related economic declines, faster- than-expected decay of older theaters and lack of access to the capital markets," Stumpp said.

Affected by the downgrades were $850 million in senior notes and the company’s bank revolving line of credit.