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Fitch: AMC's Increased Capex Delays Anticipated Deleveraging; Pressures 'B+' Rating
March 9, 2017 / 9:05 PM / 9 months ago

Fitch: AMC's Increased Capex Delays Anticipated Deleveraging; Pressures 'B+' Rating

(The following statement was released by the rating agency) NEW YORK, March 09 (Fitch) AMC Entertainment Holdings, Inc. (AMC) recently announced it intends to use some of the proceeds from the anticipated sale of its equity stake in National Cinemedia (NCM) to fund capital expenditures supporting its domestic and international growth initiatives. For fiscal 2017, the company expects to spend $700 million-$750 million of gross capital expenditures ($530 million-$650 million net of landlord contributions), which includes plans to renovate an additional 122 theatres and 1,560 screens in 2017 and 2018. Fitch believes AMC's willingness to use the NCM proceeds for reasons other than debt paydown is indicative of a more aggressive financial policy. Although Fitch views the increased capex spending positively, we believe the pace of deleveraging will be slower and the company's aggressive financial policy and continued M&A strategy could be more in line with a 'B' rating. Fitch placed AMC's 'B+' Issuer Default Rating (IDR) on Rating Watch Negative on July 14, 2016 following the company's announcement that it agreed to acquire European movie exhibitor Odeon & UCI Cinemas Group (Odeon & UCI). AMC noted on its Jan. 23, 2017 call discussing the Nordic Cinema Group Holding AB (Nordic) acquisition that it would be using proceeds from the monetization of their NCM ownership to manage leverage and pay down debt. However, on their year-end earnings call, AMC articulated that a portion of the proceeds will be used for capital expenditures, thereby reducing near-term debt reduction, indicating a more aggressive stature towards leverage. Assuming that AMC does not use a sufficient portion of NCM share sale proceeds for debt repayment, Fitch expects pro forma leverage as of the closing of the Nordic acquisition to be above 5.0x. Although Fitch initially expected leverage to decline below 5.0x within 12-15 months of closing, the reallocation of NCM sale proceeds leads us to now expect gross leverage will not decrease below 5.0x until 2019. Fitch estimates that pro forma gross capital expenditures of all four entities combined for the LTM period ended Sept 30, 2016 totalled $500 million. The anticipated increase of capital expenditures is driven primarily by recliner seat renovations and food and beverage expansion at AMC and legacy Carmike assets. AMC also plans to introduce a new proprietary Premium Large Format (PLF) across the domestic circuit. Internationally, AMC intends to reseat Odeon & UCI theatres and roll out enhanced food options and PLF screens across their entire international asset base. Fitch expects to revisit the rating following the closing of the Nordic acquisition and will consider AMC's ability and commitment to reduce leverage. Fitch ratings for AMC, currently on Rating Watch Negative : AMC Entertainment Holdings, Inc. --Long-Term IDR 'B+'; --Senior secured credit facilities 'BB+/RR1'; --Senior subordinated notes 'B-/RR6'. Contact: Rachael Shanker, CFA Associate Director +1-212-908-0649 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 David Peterson Senior Director +1-312-368-3177 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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