Swap and $250 million ATM offering will help shore up balance sheet and reduce net leverage by about 10%, says analyst
AMC Entertainment Holdings Inc.’s stock tumbled 22% Wednesday to brake the rally of the past two days, after the cinema operator disclosed that it will issue 23.3 million shares in a debt-for-equity exchange for $163.9 million of bonds that mature in 2026.
The 10%/12% cash/PIK toggle bonds — PIK stands for payment-in-kind — offer an issuer the ability to defer interest payments in return for a higher coupon later.
Based on the aggregate principal amount of the bonds plus $6.9 million of accrued interest, the stock is being issued at an implied value of $7.33 a share, the company said in a regulatory filing.
The stock AMC, -20.00% closed Tuesday at $6.85 after rising 32% on the day. It was last quoted at $4.75.
The stock took off on Monday along with other meme stocks, after trader Keith Gill, aka Roaring Kitty, posted his first tweet since 2021 and revived the trading frenzy from that period.
The debt swap comes a day after AMC disclosed that it had completed an at-the-market offering of $250 million of equity capital on Monday via the sale of 72.5 million shares at an average price of $3.45 per share.
That ATM offering had originally been announced on March 28.
B. Riley analyst Eric Wold said the two deals are expected to reduce net leverage by about 10%, “and, we believe, enhance AMC’s position with debt holders as management is in the midst of negotiating maturity date extensions.”
Net leverage is currently high compared with 2024 to 2025 adjusted Ebitda estimates, said Wold, referring to earnings before interest, taxes, depreciation and amortization. But maturity extensions would give the company more time to benefit from improving box office trends in 2025 and beyond, he said.
“Although we remain neutral rated with an $8 price target, we see a path to pre-pandemic AEBITDA in the coming years even on lower-than-historical attendance that could drive a valuation based on fundamentals that is well above current levels,” said the analyst.
If attendance per domestic screen reached levels about 15% below 2018 levels, box office per screen would outstrip 2018 levels by about 6%, “with overall AEBITDA approaching or exceeding the $900 million+ generated in that year,” said the note.
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Tuesday’s news spurred a rally in AMC’s high-yield bonds. The company has more than $2.5 billion in outstanding bonds that are rated at CCC+ by S&P Global Ratings, most of which will mature in 2026. The company has been reducing its debt via debt-for-equity exchanges or cash transactions on the open market or in private deals.
B. Riley’s Wold estimates that AMC still has about 191 million common share authorized but not issued that could be used for additional ATM or debt swap transactions.
GameStop Corp. GME, -18.87%, meanwhile, was down 30% Wednesday. GameStop and AMC were the original meme stocks and GameStop has gained 81% in the week to date, without any fresh news driving the move.