OREANDA-NEWS. Fitch Ratings will maintain the 'BB+/RR1' issue rating on AMC Entertainment Inc.'s proposed senior secured credit facility that is expected to be used to refinance the company's existing secured credit facility. The facility will be comprised of a $150 million revolver maturing in 2020 and an $881 million term loan maturing in 2022. The Issuer Default Rating (IDR) for AMC Entertainment Inc. is 'B+' with a Stable Outlook. AMC had approximately $1.9 billion of debt outstanding as of Sept. 30, 2015.

Fitch views the transaction favorably as the transaction will benefit AMC's maturity schedule and financial flexibility by extending the term loan and revolver maturities to 2022 and 2020, respectively. The terms of the new credit facility, including the security and guaranty structure are expected to be substantially similar to the existing term loan due 2020. Consistent with the existing credit facilities, the revolver will have a maximum net secured leverage ratio of 3.25x financial covenant. Outside of the extension of the company's maturity profile and an expected reduction of interest expense related to this transaction, there have been no material changes to AMC's credit profile.

KEY RATING DRIVERS

Through improvements in operations and reduction in absolute levels of debt, AMC has driven unadjusted gross leverage from 8.7x in 2011 to Fitch estimated 3.9x as of Sept. 30, 2015, pro forma for the new credit facility.

AMC has demonstrated traction in key strategic initiatives, as can be seen in its improving admission revenue per attendee, concession revenue per attendee, and concession gross profit per attendee. Fitch calculates Sept. 30, 2015 latest 12 months (LTM) EBITDA margins of 16.6% (excludes National Cinemedia distribution), an improvement from 13.6% at Sept. 27, 2012. Fitch recognizes that AMC's expected investment into premium food offerings will pressure high concession margins; however, growth in the top line should grow absolute gross profit dollars in this segment.

AMC Entertainment Holdings Inc. (AMCH) instituted a quarterly dividend of $19.6 million ($78 million for the full year), with the first dividend paid in the second quarter of 2014 (2Q'14.) For the LTM period ended Sept. 30, 2015, AMCH paid $78.5 million in dividends. In conjunction with elevated capital expenditures relative to historical periods, the dividend will pressure free cash flow (FCF). Fitch has modeled capital expenditure spending of approximately $255 million and $275 million in 2015 and 2016, respectively. As a result, Fitch expects FCF will range from zero to positive $50 million over the next two years. LTM FCF at Sept. 30, 2015 was $6 million.

Fitch believes that AMC has sufficient liquidity to fund capital initiatives, make small theater circuit acquisitions, and cover its term loan amortization. Liquidity is supported by cash balances of $96 million and availability of $137 million on its secured revolver as of Sept. 30, 2015.

AMC's ratings reflect Fitch's belief that movie exhibition will continue to be a key promotion window for the movie studios' biggest/most profitable releases.

Despite 2014's film slate delivering negative growth in box office revenues, down 5.2%, according to Box Office Mojo, industry fundamentals have so far benefitted from a strong film slate in 2015. Year-to-date through Sept. 30, 2015, 2015 box office revenues were up 6.2% over 2014 for the same period. Industry-wide attendance declines of 5.6% in 2014 were offset minimally by a 0.5% increase in average ticket price, and year-over-year comparisons will prove easy in 2015. Similar to past years, the 2015 film slate featured many high-profile sequels, some of which have already proven to be domestic and international successes. The releases of 'Furious 7', 'Avengers: Age of Ultron', 'Jurassic World,' 'The Hunger Games: Mockingjay - Part 2,' and 'Star Wars: The Force Awaken' headline a strong film slate. Fitch believes the film slate will support industry-wide box office revenue levels with low- to mid-single-digit increase in attendance and a slightly increased average ticket price.

Fitch believes the investments made by AMC and its peers to improve the patron's experience is prudent. While capital expenditure may be elevated in the near term and concession high margins may be pressured over the long term, Fitch believes that the exhibitors will benefit from delivering an improved value proposition to its patrons and that the premium food services/offerings will grow absolute levels of revenue and EBITDA.

In addition, AMC and its peers rely on the quality, quantity, and timing of movie product, all factors out of management's control.

RATING SENSITIVITIES

Positive Trigger: Fitch heavily weighs the prospective challenges facing AMC and its industry peers in arriving at the long-term credit ratings. Significant improvements in the operating environment (sustainable increases in attendance from continued success of operating initiatives) driving FCF/adjusted debt above 2% and adjusted leverage below 4.5x on a sustainable basis could have a positive effect on the rating. In strong box office years, metrics may be strong in order to provide a cushion for weaker box office years.

Negative Trigger: A debt-financed material buyout, acquisition or return of capital to shareholders that would raise the unadjusted gross leverage beyond 5.5x could have a negative effect on the rating. In addition, meaningful, sustained declines in attendance and/or per-guest concession spending that drove leverage beyond 5.5x would pressure the rating as well.

LIQUIDITY AND DEBT STRUCTURE
AMC's liquidity is supported by $96 million of cash on hand (as of Sept. 30, 2015) and $137 million availability (net of letters of credit) on its revolving credit facility, which is sufficient to cover minimal amortization payments on its term loan.