Can AMC Entertainment capitalize on a second meme craze?
The stock next to it GameStop, surged this week after “Roaring Kitty,” the man who inspired the massive short squeeze of 2021, was posted online for the first time in nearly three years. The return of Roaring Kitty, whose legal name is Keith Gill, has caused AMC shares to more than double since Friday’s close. They rose above $6 in afternoon trading on Tuesday.
The last time these small investors rallied for AMC and the stock soared, the movie theater chain avoided bankruptcy. Now it has a chance to curb its high debt burden.
CEO Adam Aron made three major acquisitions “in a relatively short period of time” after taking over the company in 2015: theater chains Carmike, Odeon and Nordic, said Eric Handler, chief executive of Roth MKM. In total, AMC spent around $3 billion on the deals.
While the acquisitions bolstered the size of the AMC theater network, they also weighed on the company’s balance sheet, Handler said.
“When the pandemic hit, they kind of suffered a double whammy because they were already heavily indebted and then they had to take on even more debt to survive and give them more money,” Handler said.
As of the start of 2022, AMC has paid off nearly $1 billion of its debt, but still has around $4.6 billion remaining.
AMC has about $20 million due in 2024 and $118 million in 2025, which Wedbush analyst Alicia Reese said is “not a hurdle.” But the looming $2.96 billion to be raised in 2026 requires the most attention.
“I think they’ll be able to renegotiate some of it, but a lot of it will probably just be longer term,” Reese told CNBC.
Lenders were willing to renegotiate terms, but a rise in the stock price could allow AMC to strike better deals.
Currently, AMC pays around $100 million in interest expenses each quarter, cutting into its potential profits. With the box office still recovering from pandemic- and strike-related production shutdowns, AMC has been unable to cover its fixed costs such as rent, employee payroll and other operating expenses, said Eric Wold, senior analyst at B. Riley Securities .
“What’s important to me is can you use this to strengthen your balance sheet like you did a few years ago?” he said.
AMC raised $250 million in new equity through a sale that ended Monday, just as enthusiasm for meme stocks was resurgent. The cinema chain sold 72.5 million shares in a public offering that began in late March. AMC sold the stock at an average price of $3.45 per share before commissions and fees. The majority of the shares were sold before the share price jump.
“The stock’s recent rise provides an additional opportunity to raise equity capital that can support liquidity and deleveraging and ultimately transition AMC into a structure that could facilitate institutional support,” James Goss, an analyst at Barrington Research, wrote in a note to investors Tuesday.
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2024-05-14 19:56:14
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