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Financial Times - February 2022

Updated: Feb 3, 2022

AMC’s meme-stock recovery helps it cut debt costs with fresh $1bn deal

Theatre chain embraced by Redditors slashes interest rate burden by as much as half

AMC’s borrowing will enable it to pay off bonds with coupons as high as 15% © Bloomberg

Joe Rennison in New York - Feb 2, 2022

AMC Entertainment chief executive Adam Aron has fulfilled a new year’s resolution to bring down the cinema chain’s interest payments, capitalising on its status as a beneficiary of last year’s meme stock craze to borrow nearly $1bn from investors to refinance more costly debt.

The fundraising organised by Citigroup received blockbuster investor demand, allowing AMC to increase the deal size from $500mn to $950mn, according to people familiar with the matter.

It marks the latest chapter in AMC’s remarkable recovery after the bleak early days of the pandemic. Shares of the company soared when retail investors co-ordinated through social media platforms such as Reddit to buy its stock. That allowed AMC to raise cash through new share sales.

The latest debt fundraising will enable AMC to not only repay bonds with a coupon of 10.5 per cent, borrowed in April 2020, as planned, but also bonds with a 15 per cent coupon put on when it was on the brink of bankruptcy a year ago. The new debt will slash the company’s interest rate to 7.5 per cent, according to people familiar with the deal.

AMC’s share price rose from about $2 a share 12 months ago to a peak of more than $60 in June before tumbling back to $15.42, giving it a market capitalisation of $7.9bn.

At the start of January, Aron declared that his new year’s resolution for AMC would be to refinance its debt.

“In 2020 and early 2021, AMC took on debt at high interest rates to survive,” he said on Twitter. “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.”

The new bond also removes certain restrictions on AMC, analysts noted, allowing it to incur additional debt and increase its capacity to pay dividends and make investments.

Investors welcomed the move. Corporate borrowing costs remain historically low despite a rise in yields prompted by more hawkish comments from Federal Reserve officials as they prepare to pull back emergency support to financial markets shaken by the pandemic.

AMC released preliminary results for the fourth quarter on Tuesday, saying it expected adjusted earnings before interest, taxes, depreciation and amortisation to have risen to about $150mn in 2021, from a $327mn loss in the fourth quarter of 2020.

“Given the interest rate and market uncertainty, it seems like a great idea to do this,” said Kevin Baer, founder of CKC Capital. “We think more companies should be doing it.”


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