AMC Entertainment Holdings (NYSE: AMC) has had a rollercoaster of years of extreme highs and lows, many of which are directly related to the pandemic. A recent management decision was made in hopes of getting the theater chain back on track and heading for the top.
AMC management has been dealing with declining attendance at its theaters for years. The problem was severely exacerbated in 2020 when its theaters were forced to close for several months in response to concerns about the spread of COVID-19.
Luckily for AMC, the fate of the company sparked the interest of a group of retail marketers that sparked the meme stock market frenzy of 2021. AMC’s stock price soared as it was caught up in the craze. Management cleverly took advantage of the high share price to issue new shares and raise much-needed funds.
Now management is looking to deploy that money in a way that could save the theater chain hundreds of millions in expenses a year.
AMC has over $5.2 billion in long-term debt
According to the the wall street journal, AMC is in advanced talks to pay off some of its high-interest debt. In addition to selling stocks to raise cash during the pandemic, AMC has borrowed billions of dollars at double-digit interest rates. Already, in the nine months ended Sept. 30, AMC incurred interest expense of $328.3 million, a 40% increase from $233.7 million in the same period last year. former.
That weighs heavily on a company that barely managed $727.6 million in revenue during the same nine-month period. In other words, AMC’s interest expense is 45% of fiscal 2021 revenue so far. Overall, it had $5.2 billion in long-term debt as of Sept. 30. . Of that total, $1.95 billion is for loans due in 2026 bearing only 3.1% interest, a rate that management likely considers more manageable.
Management is focused on over $2.9 billion in debt with interest rates between 10.5% and 17%. These loans, the principal of which is due between 2023 and 2026, generate the bulk of the company’s interest charges. As of September 30, AMC had $1.6 billion in cash and cash equivalents on its balance sheet. Besides meeting short-term financial obligations, it’s hard to imagine a better use of that money than paying off high-interest debt.
Still, the move may not go down well with AMC shareholders. They balked at the idea of allowing management to raise more equity by authorizing an increase in the number of shares, a move that would indeed have served the company well when its share price was at its lowest. . Shareholders seem more excited about lunar ideas for AMC, like issuing non-fungible tokens (NFTs), forays into cryptocurrency, and more. Practical measures like paying down debt and cutting expenses are less appealing.
AMC’s stock is already down 41% in 2022
Management has worked diligently during the pandemic, balancing practical business needs and maintaining shareholder interest. After all, without the billions infused from stock sales to eager investors, AMC wouldn’t have the luxury of considering paying off its debt sooner. So it might be just as much in the company’s interest for management to heed unworkable shareholder ideas as it is to consider paying off debt.
Yet the stock price is down 41% since the start of 2022 as enthusiasm for the stock itself wanes. Maybe that’s why management finds the time to take care of the practical needs of the business with the money they have. The prospect of raising additional billions through stock sales seems like an opportunity that will once again be available to AMC.
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