In early January, AMC Entertainment CEO Adam Aron announced a New Year’s Resolution to refinance high interest debt the chain took on to survive the pandemic. Today, the WSJ reports he’s “in advanced talks with multiple parties” to do just that but a dip in the company’s stock (and its bonds) hasn’t helped.
“The precipitous share price decline puts them in a more precarious position to refinance high interest debt and extend maturity — a worse position than they were a month or two ago,” said Alicia Reese of Wedbush Securities. Bur she noted that AMC had, earlier, been “really successful refinancing before the retail investors came in.”
If it can’t refinance or there’s a snag, it means the company would have to shell out cash, or more of it and sooner than it would like, to pay down interest due.
An AMC rep declined to comment.
MY NEW YEAR’S RESOLUTION FOR AMC. In 2020 and early 2021, AMC took on debt at high interest rates to survive. If we can, in 2022 I’d like to refinance some of our debt to reduce our interest expense, push out some debt maturities by several years and loosen covenants. 1 of 2 pic.twitter.com/f9Zgy8CYgh
AMC share are down around 2% at $16 in afternoon trade amid a broader market selloff that accelerated this week. But the stock woes for the world’s largest exhibitor started well before. It’s shed ten points from the start of 2022 and is way off its 52-week high of $70 last summer as the meme-stock frenzy peaked. Retail investors had rallied to the company starting in Jan. of 2021 as it teetered on the brink of bankruptcy, and basically saved it. But not before AMC had taken on high interest rate debt in 2020 and early 2021 to keep the lights on. Aron wants to refinance the highest interest rate debt for lower rates and longer maturities.
According to the WSJ, the company’s bonds had previously held up recently even as its shares slipped. But on Monday the bonds dropped by several points as the stock dropped more than 7% — indicating that even bondholders who are more protected than stockholders in the pecking order may be worried about the business. As of September, AMC had $5.5 billion of debt that ranked ahead of equity.
The refinancing push comes AMC news comes with the box office in a bit of a lull, as AMC’s love affair with meme investors has cooled a bit, and as the overall stock market experiences a dramatic correction.
Investors are awaiting news from Federal Reserve Chair Jerome Powell at the end of a two-day meeting Wed. regarding planned interest rate increases this year. The hikes are needed to moderate inflation. Investors are spooked by both higher interest rates and higher inflation, by some subpar quarterly earnings and outlooks, and by rising tensions with Russia over Ukraine.
The volatility has taken a toll on individuals who are the bulk of AMC shareholders. They first jumped into stocks like AMC and GameStop, egging each other on to buy and hold, to plant a flag against short sellers and institutions betting the shares would fall — the little guy taking a stand against corrupt Wall Street.
Aron wooed them brilliantly, posting frequently on Twitter, creating a special new vertical for them on AMC’s investor relations portal, offering free popcorn, coffee, hosting screenings and accepting cryptocurrency. But it’s a mixed bag. The so-called “diamond hands” who buy and hold no matter what were agitated when Aron recently unloaded two big tranches of his own shares (even though he’d warned the sales were coming for estate planning purposes.) CFO Sean Goodman also sold.
Previously, meme investors also blocked Aron when he wanted AMC to issue new shares to raise cash back when the stock was at a high last year. The shareholders didn’t want their stakes diluted.
Some of them taken a bath. “You have the faithful who came in early and bought in low enough to where this is not financially damaging,” Reese said. “But many got in at the top and obviously lost a lot. Many of them, regardless of when they got in, still think it’s a setup.”