The world’s largest theater chain may face a cash crunch, forcing it to sell assets or raise dilutive financing as the exhibition business is in an uphill battle against the spreading coronavirus

The theater industry was already facing a tough 2020 before Covid-19 hit, noted analyst Alan Gould of Loop Capital. AMC Entertainment’s recently sinking stock reflected fears that came to a head this weekend. The box office plunged, big cities like New York and Los Angeles ordered theaters closed. The chain said Monday that for theaters still open it would be adopting CDC recommendations to limit auditoriums to 50 people.

AMC ended 2019 with $265 million of unrestricted cash and $332 million of undrawn credit, Gould said – so about $600 million in cash. But he’s projecting a negative $285 million of free cash flow in the first half and said a sustained virus “could lead to some liquidity issues.”

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The box office was down more than 60% year-on-year this weekend, its worst showing in over two decades. While the situation is fluid, Gould said, he lowered his industry box office estimates to -23% in the first quarter and -60% in the second quarter – down from prior estimates of -8% and -13%, respectively. “We assume the numbers get worse for the next six weeks as titles have been pulled and the box office starts easing back toward the end of the second quarter. Damage could be worse if the virus extends into June, theaters are closed, or if more big titles like Disney’s Black Widow, currently scheduled for May 1, and Warner’s Wonder Woman 1984, currently scheduled for June 5, are also delayed,” the longtime entertainment analyst said in a note to investors.

The full-year box office could fall below $9 billion, the lowest-level box office revenue since 2001, with less than 1 billion admissions for the first time in 44 years, he said.

We have made a number of assumptions on the degree of variable costs and are not sure how quickly AMC can turn off its capital expenditure commitments. For AMC we are now assuming 2020 declines of 16% in attendance, 16% in revenue, 25% in adjusted EBITDA and an almost doubling of net losses

AMC ended 2019 with $5 billion of debt, which is not insignificant. However, there are no major debt maturities until 2024, Gould said. We are not concerned with AMC breaking covenants – but about liquidity. Liquidity could become an issue if theaters have to close, more big films are delayed, or the impact of the virus extends through the entirety of the second quarter, or longer

A-List, AMC’s monthly subscription plan, could provide some recurring revenue, but he said he expects increased churn as more big title releases are being pulled from the first-half film schedule. “We assume AMC would have to reimburse its A-List members for any period of time that their local AMC theaters are closed if that occurs.”

He said he’s not assuming an overall change in consumer behavior, which means that 2021 would return to be a normalized year. The release schedule looks strong and with some 2020 films delayed to next year, could be even stronger.