Shares of AMC Entertainment (NYSE:AMC) stock are under pressure today on news that the movie theater chain is struggling to restructure its debt load.
The Wall Street Journal and other media outlets are reporting that AMC is in talks with several creditors about lowering the interest charges on its debt and pushing out its maturities by several years to help the company recover as it emerges from Covid-19 lockdown measures. These measures resulted in closures and reduced-capacity operations at its 10,000-plus movie houses over the last two years.
Right now, experts approximate that AMC’s total debt burden stands at more than $5 billion.
What Happened With AMC Stock
News that AMC is negotiating more favorable terms with its creditors follows recent comments from CEO Adam Aron that his top priority this year is to improve the company’s financial position. AMC struggled throughout the pandemic, and its recovery has been hampered by the rise in popularity of streaming services. Direct-to-streaming movie releases have pressured global movie theater chains.
Granted, AMC is taking other measures to recover. It is heavily promoting theater-exclusive movies like Spider-Man: No Way Home. It has also enhanced its app, brought its popcorn to grocery stores, and released non-fungible tokens (NFTs) to engage with shareholders. Despite these efforts, its debt continues to swell.
Why It Matters
AMC’s efforts to refinance its debt comes as the company’s stock gets battered amid the broader market selloff. Year to date, AMC stock is down 40%.
The sharp decline reverses much of the gains AMC stock achieved last year, that, ironically, helped the company delay bankruptcy. Unfortunately though, the Wall Street Journal report indicates last’s years rally was not enough.
Part of the reason why comes back to stock sales. AMC twice failed to gain shareholder approval to issue new equity, and since then, it has not been able to issue additional shares. This is likely why it is now negotiating for better terms with its creditors.
What’s Next for AMC Entertainment
News that AMC is trying to refinance its debt is putting additional pressure on the company’s stock at a time when it is already being beaten down. New investors should steer clear of AMC until the dust settles and we receive an update on its debt issues.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
