This year has not been kind to AMC Entertainment (NYSE:AMC) stock. Shares of the movie theater chain are down over 40% year to date as the r/WallStreetBets effect begins to cool off. However, AMC is actively working to refinance its debt at a lower rate. The company recently announced that it had received investor commitment for a $950 million bond offering. So, why does this matter?
The $950 million bond offering was raised from the initial planned $500 million offering. In addition, the bonds will carry an annual interest rate of 7.5% and expire in 2029. Proceeds from the offering will help pay off the principal of bonds which were issued in April 2020. During that time, AMC issued $500 million with a 2025 expiration date to help build cash during the height of the Covid-19 pandemic.
CEO Adam Aron hinted at a debt refinance during the beginning of the year:
“In 2020 and early 2021, AMC took on debt at high interest rates to survive. If we can, in 2022 I’d like to refinance some of our debt to reduce our interest expense, push out some debt maturities by several years and loosen covenants.”
AMC Stock: 8 Things to Know About the $950 Million Debt Deal
- AMC’s new bonds will only be offered to “persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A.”
- Rule 144A permits “persons other than the issuer to resell eligible securities to qualified institutional buyers.”
- The new bond offering suggests that AMC is refinancing debt at a lower rate as its business picks up again from economic reopening.
- AMC reported preliminary Q4 results last Tuesday. The company announced revenue of $1.17 billion, which was above the FactSet consensus estimate of $1.09 billion.
- Furthermore, AMC’s revenue figure would represent the highest quarterly revenue since the start of the pandemic.
- However, the movie theater chain remains unprofitable. The company estimates a Q4 net loss between $114.8 million and $194.8 million. FactSet’s estimated Q4 net loss of $119 million is on the lower end of AMC’s estimate.
- Risks to AMC include the resurgence of Covid-19, unprofitability and changes to consumer preference.
- Finally, AMC has an average price target of $10.45 among seven firms with coverage of the stock.
On the date of publication, Eddie Pan did not hold (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.