AMC Entertainment Holdings Inc. took extraordinary measures to survive a pandemic, and while it avoided bankruptcy, it seems the company will be paying interest on its COVID-19-era strategy for years to come.
In 2021, retail investors tagged AMC as a "meme stock." Thousands of armchair traders piled into the ticker out of appreciation for the 100-year-old business and to buck Wall Street short sellers. AMC took advantage of the gains, issuing both debt and stock to shore up cash. The company closed 2021 with almost 514 million shares outstanding, massively diluted compared to the 104 million shares trading at the end of 2019, according to S&P Global Market Intelligence data.
However, the meme stock tsunami has receded through the first month of 2022, and the company is left with a debt-loaded balance sheet and market capital well below the high water mark from the prior year. AMC is now looking to refinance high-interest debt it took on in pandemic desperation, according to a recent report in The Wall Street Journal, but it seems issuers and retail investors may no longer have much incentive to continue propping up AMC.
The stock has cratered 46.6% year-to-date as of Jan. 27, much deeper than the 9.2% decline in the S&P 500 and the 11.5% drop absorbed by Cinemark Holdings Inc., the second-largest publicly traded U.S. theater company.
The company's new army of retail investors held strong on the stock through the end of 2021, even as the company reported a meandering pace of recovery and revenues that were a fraction of its pre-pandemic business. At Dec. 31, 2021, AMC shares were up 1,183% from the opening of the year.
But cracks began to appear in the meme-stock story amid a broad-market selloff in 2022. For AMC, the downturn may have been exacerbated by a sell-off of executive holdings in early January. On Nov. 1, 2021, AMC CEO Adam Aron reported ownership of 1,033,497 shares in AMC. By Jan. 3, 2022, he had reduced his stake by almost half, down to 517,586 shares, according to company filings compiled by S&P Global Market Intelligence.
"We expect continued volatility in shares of AMC ... with an overall decline back down toward earth the longer it takes for retail investors' theories to be substantiated, and as some lost faith after senior management sold a substantial portion of their shares while retail investors faithfully held," Wedbush Securities analyst Alicia Reese said in a December 2021 note.
Another prong of AMC's 2021 survival strategy included refinancing and extending maturities on its existing debt. The company was able to maneuver its debtholders and achieve a recapitalization, but at significantly higher interest rates. Now, AMC would like to reduce those rates, but the company's bonds have been experiencing a sell-off in step with its equity, which could make it difficult for AMC to find lenders to support another refinancing.
The company entered the 2020 pandemic year with a heavily leveraged balance sheet after a run of consolidation extending into 2019. AMC's fourth-quarter 2019 total debt was up 96.0% year over year at $10.35 billion.
Debt markets tightened during the pandemic, particularly for leveraged companies in the hardest-hit industries. AMC was able to find some new capital, increasing its debt load by about $1 billion to $11.35 billion by the fourth quarter of 2020, but most of its negotiations involved extending maturities on existing debt and getting short-term relief on immediate payments. AMC pushed many of its obligations out to 2026 at coupon rates of 10.5% or 15%.
Some of those bonds, such as its secured 10% bonds due 2026, traded as low as 92 cents on the dollar as of Jan. 24 compared to 99.5 cents at the opening of the year. With bankruptcy risk now somewhat muted and theater operations gradually improving, the company may still be able to find lenders amendable to refinancing at lower interest rates, but it could take on higher yields due to lower trading values of its existing debt securities, according to an unnamed source cited by the Journal.
AMC shares have dropped 12.7% since Jan. 24, the day before The Journal reported its refinancing plans, compared to a 1.9% loss on the S&P 500.