AMC Entertainment (AMC) Ratings Placed on CreditWatch Negative by S&P

Standard & Poor's Ratings Services said that it placed its ratings, including the 'B+' corporate credit rating, on AMC Entertainment Holdings Inc. (NYSE: AMC) on CreditWatch with negative implications.

"The CreditWatch placement follows AMC's announcement that it has entered into a definitive agreement to acquire Columbus, Ga.-based Carmike Cinemas Inc. in a transaction valued at $1.1 billion," said Standard & Poor's credit analyst Jawad Hussain. The combined company will own and operate 600 theatres in 45 states and the District of Columbia before any required divestitures. Although there isn't a large degree of market overlap, the combined entity would be the largest movie theater exhibitor in the U.S., which could create regulatory concerns.

We do not expect the transaction to affect AMC's fair business risk profile assessment, though the acquisition will increase the size, scale, and diversification of the company's exhibition assets. This should provide some benefit in AMC's film rental and concession negotiations for the combined entity.

AMC plans on assuming $230 million of Carmike's senior secured notes and financing the remaining $830 million of consideration and fees with cash. We expect the company to fund the cash component with cash on the balance sheet and incremental debt issuance. As a result, we expect the combined company's adjusted leverage to be above our 5x leverage threshold for an aggressive financial risk profile assessment when the transaction closes. Leverage, pro forma for the acquisition and $35 million of identified synergies, will increase to around 5.3x.

In resolving the CreditWatch placement, we will evaluate AMC's ability to integrate all of its theaters from the Carmike Cinemas acquisition. In addition, we will assess the combined company's financial risk profile and evaluate its financial policy and ability to reduce debt to EBITDA below 5x on a sustained basis within one year of the transaction's closing. We expect the transaction to close in the fourth quarter of 2016.

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