AMC takes aim at massive debt burden with ‘APE’ special dividend

AMC Entertainment Holdings Inc. took Wall Street by surprise with the announcement of its “APE” special dividend after market close on Thursday.

This, of course, is a company that is no stranger to bold moves, as evidenced by the movie theater chain’s $27.9 million investment in gold and silver miner Hycroft Mining Holding Corp.
HYMC,
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earlier this year. The dividend also marks the latest move in a fight over stock issuances. 

The AMC Preferred Equity Units will list on the New York Stock Exchange under the symbol “APE,” a nod to the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.”

The special dividend is the latest stage in a journey that took AMC Entertainment
AMC,
+18.86%
from beleaguered pandemic victim to meme-stock phenomenon. AMC’s meme stock status sent the company’s shares skyrocketing last year, before coming back to earth.

AMC shares closed at a record $62.55 on June 2, 2021, following a more than six-fold rally in two weeks. With the stock down 7.2% in morning trading Friday, it was trading 72.3% below that record close.

While AMC remains a cause célèbre for a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a company that assesses the finances of public and private companies.

The APE special dividend could help AMC cut its massive debt burden, according to analysts.

See Now: AMC announces special dividend in the form of ‘Ape’ preferred shares; stock falls

The dividend “should be opportunistically used to [reduce] total outstanding debt or otherwise,” wrote Benchmark analyst Mike Hickey, in a note released on Friday.

AMC currently has approximately $5.5 billion in outstanding debt, according to Hickey. “We suspect management is targeting leverage at 3x – 4x AEBITDA [adjusted earnings before interest, taxes, deprecation and amortization]. FY24 consensus is for $660M in AEBITDA, which would translate to a total debt target of $2.3B, which would imply a total debt reduction target of $3.2B,” he added.

Benchmark has a hold rating on AMC.

“We admit that we are encouraged by AMC’s preferred equity announcement, as it will afford the company an opportunity to repay its massive debt and make investments to improve its global footprint,” wrote Wedbush analyst Alicia Reese, in a note released Friday.

The APE special dividend in effect creates a two-for-one stock split, with half listed under AMC and half under APE, according to Reese. “AMC is pre-authorized to then issue up to 4.5 billion additional preferred shares of APE to raise cash,” she wrote. “Should this transaction commence, we would expect AMC to issue a portion of its authorized APE shares for cash to pay down the majority of its outstanding debt, thereby making AMC a more attractive long-term investment.”

This would also free AMC up to reinstate its quarterly dividend much sooner than it would have otherwise, Reese added.

Wedbush has an underperform rating and $4 price target for AMC.

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AMC will be issuing an APE dividend for each of its almost 517 million shares outstanding, according to Chief Executive Adam Aron. “The issuance only to our shareholders of tradable AMC Preferred Equity units clarifies who is included in our current shareholder base,” he said in the statement.

The company has faced unsubstantiated internet conspiracy theories that there are millions of synthetic AMC shares in circulation, as well as calls for a share recount, according to a report in The Wall Street Journal.

The company, which issued an “I own AMC” NFT in January, will also be issuing an “I own APE” NFT to shareholders.

Speaking during a conference call to discuss the results, CEO Aron said that AMC has the flexibility to issue more APEs in the future.

AMC also reported its second-quarter results after market close, reporting a narrowing loss that beat expectations and revenue in line with analysts’ forecasts. 

“Attendance trends benefited from a compelling blockbuster film slate and consumer demand for out of home experiences,” wrote Benchmark analyst Mike Hickey. “We believe the domestic box office can deliver growth in a recession scenario.”

“AMC has retained some market share gains vs. its pre-pandemic average as it improves its footprint both domestically and internationally,” wrote Wedbush’s Alicia Reese. “Additionally, AMC is managing well through macro headwinds driving concession costs, utility costs, and wages higher.”

Speaking during the conference call to discuss the results, AMC CEO Aron said there is a “dearth” of new big movie titles being released in August and September, adding that “things will slow for several weeks.” However, this will change during the fourth quarter, with a slew of major movies. These include Jamie Lee Curtis in “Halloween Ends,” Julia Roberts and George Clooney in “Ticket to Paradise,” and Tom Hanks in “A Man Called Otto” as well as the sequels to “Black Panther,” “Shazam,” and “Avatar.”

See Now: AMC may have been a meme-stock darling, but weakness in some key areas has the company on shaky ground

“So too the movie slate for calendar year 2023 should also make us all smile,” he added. “We look forward to Q4 of 2022 and we look forward to calendar year 2023 with absolute glee.”

AMC’s stock has run up 17.9% over the past three months but has still lost 36.3% year to date, while the S&P 500 index
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has eased 0.1% the past three months and lost 13.1% this year.

Of seven analysts surveyed by FactSet, three have a hold rating and four have a sell rating on AMC.