AMC Entertainment shares are down more than 16% before the opening bell after the nation’s biggest theater chain said it might sell up to $250 million-worth of stock, citing a low first-quarter box office.
The company said it intends to use the net proceeds, if any, from the sale “to bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes.”
Reasons for the offering, it said, are to enhance “liquidity in light of the low first quarter box office, resulting in part as previously disclosed from” Hollywood strikes last year, as well as “increased seasonal working capital requirements, and the resulting cash burn the Company has experienced.”
The shares are bouncing premarket but are down about 15% from yesterday’s close at $3.69.
AMC’s high debt after years of expansion pre-Covid had it teetering on the brink of bankruptcy during the pandemic (saved then by its meme stock status that inflated the stock) and under considerable financial strain after the WGA and SAG-AFTRA strikes disrupted the release schedule. A legal ruling last summer allowed it to sell stock, a lifeline it needed to raise cash, as it plans to do now. The company’s large cadre of retail investors dislikes new stock sales since that dilutes their stake. CEO Adam Aron has chastised them on conference calls for not understanding that a cash cushion is key to the company’s ability to continue.
AMC’s fourth-quarter numbers released in February were much improved from the year earlier in part due to a bum from Taylor Swift: The Eras Tour film, which it also distributed. But Wall Street continues to watch the numbers carefully.
“Significant uncertainty remains for AMC due to its high degree of financial leverage. Management has been successful in raising equity that has improved AMC’s potential to move past the pandemic, but risk levels remain high,” said Barrington Research analyst James Goss after the Q4 numbers.
Moody’s Investor Services said in its last report in late Jan. that its AMC profile “continues to reflect our view that further distressed exchanges or a potential balance sheet restructuring could occur given AMC’s untenable debt capital structure.”
