Over the last two years, AMC Entertainment's management has been working hard to bring the company from the brink of bankruptcy into a new stage of growth.
While AMC's business hasn't reached pre-pandemic levels yet, as its fundamentals improve, there are plenty of indications that this will occur soon.
Here's why AMC's management is doing the right thing for the company and its shareholders.
Following the Script
AMC recently announced that it has strengthened its balance sheet after repurchasing approximately $72.5 million of its 10% second-lien subordinated secured notes due 2026.
In other words, the company was able to pay off $72.5 million of long-term debt by paying only $50 million. That's a 31% discount — not bad at all.
Today, AMC's total debt stands at $10.7 billion, with net debt — the amount of cash and liquid assets remaining if the debt were to be paid off immediately — at $3.8 billion.
However, AMC's management team refers to themselves as "balance sheet experts." They've managed to raise enough cash to keep the company out of bankruptcy and are looking toward the future.
The debt payoff initiative is in line with the company's internal motto of "Recovery, Agility, and Transformation." According to AMC CEO Adam Aron, the future of the company's cash management consists of plans that have already been put into place:
- Support operations: Investing in infrastructure and maintaining its core business (movie theaters).
- Repay high-interest loans and deferred rent: Last quarter, AMC refinanced approximately $941 million in debt, paying 7.5% on these funds, with the principal due in 2029.
- Investing in growth: Initiatives such as buying a stake in gold and silver miner Hycroft Mining to diversify revenue generation over the long term and investing in AMC's retail-branded popcorn business.
No More Share Dilution in 2022
Confidence in AMC's recovery has led management to announce that no further equity issuances will occur during 2022. This shows that AMC has a decent-enough liquidity position to move forward with its recovery and transformation plans.
Recall that AMC issued new shares in January and June 2021. The June issuance program generated about $587.4 million for the company's cash flow, which allowed the company to avoid bankruptcy.
Share dilution often causes selloffs because it involves cutting shareholders' positions. At least investors don't have to worry about this anymore in 2022.
Why AMC's Management Is Doing the Right Thing
AMC's business was severely affected by the pandemic and was teetering on the edge of bankruptcy. This led short sellers to bet heavily against the company's stock.
AMC's management had the opportunity of a lifetime when a group of retail investors decided to support the stock against predatory short sellers.
If AMC's management hadn't taken advantage of capital from the appreciation of AMC's share price, it would have been like winning the lottery and not picking up the prize.
Since then, the company has been investing strategically in what matters for its business to recover in the short term — as well as continuing to generate shareholder value for the long term.
Only time can tell whether AMC's management will succeed. But maintaining a healthy balance sheet seems like a good place to start.
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