AMC benefits from stock madness, reduces leverage

3 min read
John J. Doran

Movie-theater chain AMC Entertainment said on Thursday it was able to cut its first-lien indebtedness by US$600m after noteholders elected to convert their 2.95% convertible senior secured notes due 2026 into class A common stock.

In a filing on Thursday, AMC said affiliates of Silver Lake Group, and certain co-investors elected to convert these convertible notes into shares of the Company’s Class A common stock at a conversion price of US$13.51 per share.

The conversion is expected to settle on January 29 and will result in issuance of 44.4 million shares of the company's Class A common stock.

AMC's bonds rallied sharply on the news, with a first lien 10.5% 2026 secured note climbing 6 points to trade at par, implying investors expect a full recovery on the notes. A 12% 2026 PIK toggle bond climbed as much as 12.75 points this morning to a cash price of US$75.5 and a yield of 19.472%, but last traded at US$68, up 5.25 cents on the dollar for the day.

The movie chain giant has struggled since the Covid-19 pandemic roiled its business, with theaters shuttered and movie goers staying at home.

But AMC's stock has benefited this week from retail investors buying its shares and driving up the price to over US$20 a share on Wednesday as part of a protest against hedge funds and short sellers.

The main stock in focus has been GameStop, a retailer of computer games, which saw its shares rise to over US$345 per share yesterday. Today, the price of both companies fell dramatically after both saw their stocks halted in trading on the NYSE today for a period of time. Some trading platform have implement restrictions on these trades as well.

Sentiment had already been improving on AMC since it has demonstrated an ability to access new capital.

On January 25 the company said it had raised US$917m of fresh capital across equity and debt markets since mid-December 2020, which it said would extend the company's financial runway "deep into 2021".

On January 27 - before its stock jumped to over US$19 - AMC said it had sold through an at-the-market equity program an aggregate 63.3 million additional shares of its Class A common stock for additional proceeds of US$304.8m, or about US$4.82 a share. Its shares were trading around US$9.58 in late afternoon today.

CreditSights said in a note today that the conversion move "removes approximately one turn of leverage in our “normalized” base case scenario for the Company, but still leaves it at ~8.6x leverage and with over US$370m of annual interest expense – both of which we believe to be unsustainable."

To the extent AMC's current cash position proves more than sufficient, the company is able to raise more cash via additional equity offerings and/or AMC is able to otherwise chip away at its debt and interest cost, it is possible that a more wholesale restructuring will not be necessary, the research company said.