Assume that you work for a commercial bank as a junior associate of its enterprise lending business. Your job is to research and report to your supervisor on whether to recommend a loan to the enterprise clients.

Today, you receive a call from the staff of the Chief Financial Officer of AMC Entertainment Holdings (AMC) for a short-term loan (10 months) of $50 million. Your task is to analyze whether your bank should agree to loan the company $50 million. A loan of this size means that you will get a good bonus if the loan is approved. However, it also means that you may get into trouble if the client is unable to pay off the debt.

AMC is one of the largest movie theater operators in the U.S. However, due to the competition from the video streaming businesses, the company has suffered from low revenue, high expenses, and high debt in the past few years. AMC is strongly affected by the COVID-19 pandemic and suffers sever financial difficulty in 2020. Since the pandemic, several motion picture production companies (such as Warner Brothers and Walt Disney) decided to synchronously release their feature films on their own streaming platforms and in theaters. Such decision likely will cause AMC to lose revenues as some audience may decide to watch the films at home using the streaming services. AMC's stock price, however, has stayed at elevated levels in 2021 because AMC is one of the "MEME" stocks which attract certain investors.

Research AMC’s financial performance and write a report to your supervisor to present your conclusion of whether to extend the loan to AMC. Your report should be approximately 6-8 pages, including the necessary tables and financial information.

Please include the following items in your report. The deliverable should be a MS Word document with tables showing the financial data and your analysis of the financial ratios (you may cut and paste the tables from MS Excel or any similar application onto MS Word).

1. A brief discussion of the company’s business and sources of income (5%)
2. The trend analysis of company’s revenue growth in the past three to five years, and the projection (from either AMC management or outside sources) of its revenue growth in the coming two years (you will need to discuss the revenue sources of AMC and whether you believe that AMC is able to expand its revenue source in the next year) (10%)
3. The trend of Company’s profitability in the past years (5%)
4. Company’s ability to generate cash flows and whether the ability is stable (10%)
5. Company’s solvency status (5%)
6. Company’s cash payment commitment to its stockholders (i.e., dividends) and its payment commitment to its current debtholders (interest expense) (10%)
7. The quality of Company’s tangible assets (type of the tangible assets, and average age of the tangible assets) [Hint: average age of the assets is the total accumulated depreciation divided by annual depreciation expense. Total accumulated depreciation is original cost of the depreciable assets minus the net carrying value of the depreciable assets.] (10%)
8. The potential impact on the net income, return on assets, and debt-to-asset ratio if ALL of Company’s “goodwill” on the balance sheet is considered impaired and of no value [Hint: if goodwill is of zero value, AMC has to write off the value as a loss and remove goodwill from its total assets.] (10%)
9. Discuss Company’s other commitments, guarantees, and legal liabilities and analyze whether these contingent liabilities pose a serious threat to Company’s ability to continue its operation (10%)
10. Your conclusion on whether to extend this loan to AMC. If you recommend making the loan with conditions (covenants) that AMC has to abide, please include them in your reports. Loan covenants may include restriction from paying additional dividends to the shareholders, restriction from repurchasing its own stocks, restriction from selling tangible assets, restriction from getting a loan from other creditors and mergers and acquisitions without the approval from your banks, etc. Note that AMC may go to another bank to borrow money if your bank put too many restrictions. (15%)
11. Please write a structured report with complete sentences that are free from grammar errors and use the tables or figures with computation process in your discussion (10%)

Please use the consolidated financials in AMC's December 31, 2020 10-K.

Answer rating: 100% (QA)

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