AMC Entertainment seized its chance this week to ease its heavy debt burden through a bond-for-equity swap after a social media post associated with Keith Gill, better known as Roaring Kitty, inspired a surprise rally in its stock.
The Caa2/CCC+ rated company said Tuesday that it had privately negotiated the issuance of 23,280,295 of shares, which it would exchange for US$163.85m of its 10%/12% Cash/PIK toggle notes due 2026.
Gill, who inspired hordes of retail investors through YouTube and Reddit to buy so-called meme stocks such as GameStop and AMC earlier this decade, has lain low since 2021.
But a single post of a meme on X, formerly Twitter, on Sunday had some investors cheering earlier this week, albeit amid talk on social media that Gill’s account may have been hacked.
Even so, the meme was enough to send the cinema chain’s shares soaring some 135% over the past few days. AMC’s stock price closed at US$6.85 on Tuesday but was trading down to US$5.16 on Wednesday, according LSEG data.
The 2026s that are part of the debt-for-equity swap have been one of the most traded corporate bonds this week after leaping to a dollar price of 85.75 on Tuesday afternoon from 70.50 on Friday, according to MarketAxess data.
It has been a similar story for AMC’s 7.5% 2029s, which were changing hands as high as 75 cents on the dollar yesterday, up from a low of 69 on Friday.
The recent liability management announcement follows a string of equity issues and debt swaps as the borrower looks to manage its debt load.
Earlier this week, the company announced it had raised US$250m through the sale of 72.5m shares at an average price of US$3.45. That offering was launched on March 28, before the latest meme rally.
"They have been opportunistic and they have issued a lot of equity and preferred securities to bolster liquidity over the last few years,” said Adam Abbas, head of fixed income at asset manager Harris Associates.
In an earnings call earlier this month, CFO Sean Goodman said that over the last two years or so, the company has reduced debt and deferred leases by close to US$1bn and in turn cut annual cash interest by about US$60m.
The company borrowed some US$2bn to survive during the Covid crisis and has since raised about US$1.2bn in equity, in part to pay down some of that debt, company officials said during the earnings call.
Coming attractions
Nevertheless, AMC still faces an approximately US$1.5bn principal payment on the 2026s at a time when Moody’s warns that the company is still undergoing an “uneven recovery” from the losses it experienced during the pandemic.
And some on the buyside expect tough times ahead for cinema chains that they believe are in secular decline.
“It is a very challenged space,” said Abbas. “For years they leaned heavily on the large comic brands and we’re possibly reaching a saturation point. There is plenty of evidence that original content will not sell as well in theaters and that’s something they will have to address, especially as the cost of [going] to the theater sets record highs versus renting at home."
In January, Moody’s said that it expects AMC’s total debt-to-Ebitda to rise to 9 to 9.5 times from 8.1 times over the near term partly due to the weak movie line-up following the Hollywood strikes last year.
Despite negative free cash flow, Moody’s expects the company to continue using cash on hand to repurchase its high coupon debt. And CEO Adam Aron clarified on the earnings call his intention to attend to the 2026 maturity sooner rather than later.
“This is not something that we're going to look at next year or the year after that,” he said. “We've been working with our board of directors and our investment banks for almost a year now in discussing the smartest ways to extend the maturities of our 2026 debt into future time periods.”