AMC bonds mixed as 2024 box office forecast disappoints; Rite Aid, Spirit Airlines up

By Cristal Cody

Tupelo, Miss., Jan. 22 – AMC Entertainment Holdings, Inc. and Rite Aid Corp. continue to attract distressed secondary action in January, though volume was light in both names on Monday, sources reported.

AMC’s bonds have “been pretty active,” one source said. “They’re finally up a little bit.”

The issuer’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) traded over 1 point better after going out Friday more than 3 points higher on the week.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) were mostly flat to about ¼ point softer by the end of the day in the more active tranche.

“They’re a little lower,” a source said.

AMC made several moves in 2023 to raise funds through stock sales and other areas as it navigated Hollywood strikes and a dearth of box office films.

The movie industry is expected to remain under pressure in 2024, according to B. Riley Securities, Inc. analyst Eric Wold, who cut the price target on AMC’s stock to $12 from $15 due to the delay in the industry’s box office recovery.

Box office revenues hit $8.9 billion in 2023 on the back of disappointing film revenues and the two Hollywood strikes that pushed numerous films into 2024 and beyond release dates, Wold said in a January note released Monday to Prospect News.

B. Riley reduced its 2024 box office revenue projection to $8.61 billion from $9.62 billion, which includes nearly $1 billion in estimated domestic box office revenues shifting from 2024 into 2025 from movie production delays.

“Ghostbusters: Frozen Empire” was supposed to be released to theaters just before Christmas Day on Dec. 20, 2023, but now has a new release date of March 29. The box office impact to 2023 was projected at an $84 million loss that is expected to be recouped in 2024, according to the note.

“Dirty Dancing Sequel” was set to be released next month on Feb. 9 but now has a to-be-determined release date for in 2025, providing a $40 million projected loss this year.

“After our analysis of the projected top films of the year, we see potential downside to our 2024 box office projections” at the $8 billion to $8.4 billion range, Wold said, citing a list of the year’s projected top 20 films for 2024.

Out of the top 20 set for release in 2024, “Deadpool 3” is expected to reach the year’s highest projected box office revenue with $365 million forecast following its July 26 release date.

The pandemic also has continued to weigh on the industry with overall domestic box office revenues in 2023 down 22% below 2019 levels, Wold said.

In the distressed retail space, Rite Aid’s 8% senior secured notes due 2026 have made inroads so far in 2023.

“There’s been a little bit of push in Rite Aid,” a source said.

If the bankrupt drugstore chain continues to “liquidate just so much,” the company could reorganize and “possibly go on to some level of success,” the source said.

Last week, Rite Aid’s real estate adviser announced additional stores and leases for sale, pending bankruptcy court approval.

Also Monday, Spirit Airlines Inc.’s stock and bonds continued to mount a comeback with the name commanding much of the distressed corporate trade, sources reported.

The 8% senior secured notes due 2025 climbed around 1½ points to 2 points on Monday on more than $36 million of paper changing hands.

On Friday, the bonds were seen as the biggest mover to the upside after climbing over 10 points on more than $90 million of supply after the company released an investor update.

With a yield at nearly 38%, the issue remained firmly in the distressed space as the week kicked off, despite rallying back from a handle in the 40s last week.

Spirit Airlines’ stock recovered more than 36% on Friday and Monday.

AMC mixed

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) traded on Monday over 1 point better with a 79 bid handle, but supply was thin, according to market sources.

On Friday, the issue was more active and quoted at 78 bid, 79 offered, up from 77 bid, 78 offered on Thursday.

The issue hit a low point last week on Tuesday at 75 bid, 76 offered, a source said.

AMC’s 7½% senior secured first-lien notes due 2029 (Caa1/B-) saw $7 million of trading action on Monday with the notes mostly flat to slightly softer from Friday in the 64½, 65¼ area.

The secured issue went into the weekend at 64½ bid, 65½ offered, down from 66 bid, 67 offered at the prior week’s start.

At the end of 2022, AMC had a net debt balance of $4.57 billion that it lowered considerably by the end of 2023, according to B. Riley Securities.

In addition to reducing the net debt balance to $4.1 billion as of the third quarter, the company also completed a $350 million at-the-market equity issuance and debt-for-equity swaps totaling $100 million that Wold estimates to have reduced AMC’s pro forma net debt balance to $3.67 billion by the end of 2023.

AMC also has launched popcorn and premium chocolate snacks in its theaters and stores and secured movie distribution deals such as the “Taylor Swift: The Eras Tour” and “Renaissance: A Film by Beyoncé” that helped boost and diversify its revenue stream in 2023.

“We applaud AMC management for controlling the controllable around improving the balance sheet as the upcoming film slate continues to evolve following the Hollywood strikes,” Wold said.

AMC has not yet released a date for its fourth-quarter results.

The company’s stock price target was lowered by $3 to $12 due to the delay in the industry’s box office recovery, Wold said.

Shares (NYSE: AMC) in the Leawood, Kan.-based movie theater owner closed Monday off 0.67% at $4.48.

Rite Aid improves

Rite Aid’s 8% senior secured notes due 2026 had rallied 4 points on Friday to 78 bid, 79 offered, but by Monday activity had quieted, sources said.

The bonds were last traded on Friday at 78¼ bid on more than $6 million of volume.

“They were at 74, 75 all week,” one source said.

The issue finished 2023 with a 70 bid handle.

Rite Aid’s 7.7% debentures due 2027 were active on Monday in thin trading and swapped hands at 3½ bid, down ½ point from Friday’s levels.

The Philadelphia-based drugstore chain has announced the closure of more than 200 stores since its Oct. 15 Chapter 11 bankruptcy filing.

Rite Aid’s real estate adviser, A&G Real Estate Partners, announced plans last week to market 55 Rite Aid leases and 24 fee-owned properties, pending approval by the U.S. Bankruptcy Court for the District of New Jersey.

Spirit mounts comeback

In other distressed names, Spirit Airlines’ 8% senior secured notes due 2025 added around 1½ points to 2 points on Monday to trade in the 64½, 65¼ range on more than $36 million of volume, a source said.

The issue was seen on Friday over 10 points better at 60 bid, 61 offered.

The bonds remain down from trading in the 74½ bid, 75½ offered context before last week’s court ruling on Tuesday against its $3.8 billion merger with JetBlue Airways Corp. but have improved from hitting a midweek low of 47½ bid, 48½ offered.

Spirit Airlines said in an investor update on Friday that the merger agreement remains in effect, and the companies are evaluating next steps.

The U.S. District Court of the District of Massachusetts on Tuesday granted the U.S. Department of Justice’s request for a permanent injunction against the proposed merger of Spirit and JetBlue.

Spirit Airlines also said Friday that it is looking at options to refinance its 2025 debt maturities, including the $1.1 billion of 8% notes.

As of Dec. 31, the company said it had $1.3 billion of liquidity, including unrestricted cash, short-term investments and $300 million of liquidity under its revolving credit facility.

The Miramar, Fla.-based low-cost airline is scheduled to discuss fourth-quarter results on Feb. 8.

Spirit Airlines’ stock (NYSE: SAVE) closed Monday 19.46% higher at $7.98.

Distressed index soft

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns ended Friday at 0.34%, compared to 0.46% on Thursday, minus 0.86% on Wednesday and minus 0.59% at the start of the prior holiday week.

Month-, quarter- and year-to-date total returns improved to negative 2.85% on Friday after finishing Thursday at minus 3.18%, Wednesday at minus 3.62% and negative 2.79% on Tuesday.

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