AMC credit upgrade comes with a catch

AMC Entertainment (AMC) has received one of the clearest signs yet that its financial position is improving.

S&P Global Ratings raised the issuer credit rating of the movie theater operator to B- from CCC+ with a stable outlook. The ratings firm pointed to improved operating performance, decreased debt, and a pathway to sustainable positive free cash flow.

The move lowers AMC’s perceived default risk. It does not make the company financially secure.

A B- rating remains speculative grade, commonly known as junk. S&P classifies ratings below BBB- as speculative, meaning borrowers remain more vulnerable to adverse business and economic conditions.

This is important for stockholders of AMC.

The corporation has lowered its debt and pushed out its closest projected maturities to 2029, but it has done so largely by issuing stock and converting debt to equity. Those moves bolster the balance sheet but dilute ownership among many more shares.

AMC had 892.6 million Class A shares outstanding as of July 22. It sold 105.3 million shares in an at-the-market offering in the first half of 2026, another 95.25 million shares directly to institutional investors, and 142.1 million shares via debt conversions.

That credit upgrade is positive news for AMC’s chances of survival. The more complex question is whether it’s equally good for the value of each common share.

“AMC has often been underestimated, and yet we continue to outperform,” AMC Chairman and CEO Adam Aron said in a company statement announcing its second-quarter results.

AMC’s record quarter supports S&P’s upgrade

AMC posted its best quarterly sales and adjusted earnings before interest, taxes, depreciation and amortization in its 106-year existence.

Second-quarter revenue rose 14.2% year over year to $1.60 billion. Adjusted EBITDA, as defined by the company, rose 69.6% to $321.4 million and free cash flow was $190.1 million. Cash and cash equivalents rose to $778.4 million.

The corporation nonetheless reported a net loss of $11.4 million, compared to a loss of $4.7 million a year ago.

The disconnect between AMC’s better operations and its continued net losses explains why the rating stays deep in speculative grade territory.

AMC’s business has very high fixed costs. Rent expense was $223.8 million in the second quarter. Interest expense was $275.9 million for the six months ended June 30, 2026.

S&P estimates that AMC carries roughly $3.8 billion in debt, more than $450 million in annual interest expense, and about $850 million in yearly rent obligations. The ratings firm expects a modest free cash flow deficit in 2026 before cash flow improves to approximately positive $75 million in 2027.

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Management said a higher leverage will help cut the interest rate on almost 75% of AMC’s debt, potentially saving additional $51 million annually assuming leverage and benchmark rates stay near present levels.

Key numbers for AMC investors

$1.60 billion: Second-quarter revenue
$321.4 million: Adjusted EBITDA
$190.1 million: Quarterly free cash flow
$778.4 million: Cash and cash equivalents
About $3.8 billion: Debt estimated by S&P
892.6 million: Shares outstanding on July 22

That saving matters. Every dollar that doesn’t go toward creditors means more room for theater upgrades, paying down debt, and recovering shareholder value.

AMC’s biggest risk has shifted from survival to dilution

Box-office rebound provides AMC more solid footing.

Domestic box office revenues totaled $5.63 billion from Jan. 1 to July 29, up 9.4% from the same period in 2025. Some of the biggest releases of the year included “Toy Story 5,” “The Super Mario Galaxy Movie” and “The Odyssey.”

S&P now anticipates domestic box office to be close to $10 billion in 2026, up from its previous projection of $9.3 billion. It anticipates revenue growth for AMC of roughly 13% in 2026 and 4-5% growth in 2027.

A healthier film slate creates tons of operating flexibility because a lot of the theater’s costs don’t go up as fast as attendance. More customers filled auditoriums at AMC as operational expenses dropped as a share of revenue in the second quarter.

AMC’s survival odds improved, but the stock math got tougher

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The bullish thesis is that with more attendance, premium screens, and lower interest expenditure, AMC can continue to generate positive cash flow and pay down debt without having to keep issuing new shares.

The negative argument is that yet another bad film cycle pushes AMC back into the equity market, further diluting existing investors.

So the S&P upgrade is more a milestone than an all-clear.

The decreased risk of default and greater likelihood of recovery directly benefit bondholders. Common shareholders must reach a point where AMC’s operating recovery exceeds the cost of its debt and the dilution already employed to decrease it.

AMC has taken major steps to become a more durable business.

Its next test will be to show that it can repair the balance sheet without asking shareholders to give up a bigger slice of the enterprise.