AMC Entertainment (NYSE:AMC) stock is in the spotlight this morning following a repurchase of debt. Today, the movie theater chain announced that it bought $72.5 million of its 10% second lien subordinated secured notes for roughly $50 million. These notes were due in 2026 and purchased through the open market. The repurchase represents a “31% discount to the face value of the debt.”
As a result, AMC’s annual interest expense will now be reduced by $7.25 million. CEO Adam Aron had the following to say about the development:
“This action is one more step along our recovery glidepath. We will continue to seek creative and meaningful strategies to further strengthen our balance sheet and create value for our shareholders in the future.”
With $7.25 million freed up, AMC is now free to pursue other business objectives. Let’s get into the details.
AMC Stock: AMC Strengthens Balance Sheet Through Debt Repurchase
During the first quarter, AMC announced that it had extinguished $135 million of debt. In the same quarter, it also reported interest expense of $93.3 million. Meanwhile, cash on hand tallied in at $1.16 billion.
Still, AMC carries about $5.5 billion in debt. The company is steadily freeing up debt that it had acquired amid the pandemic in order to escape a potential bankruptcy.
This latest debt repurchase follows a $950 million bond deal that AMC secured earlier this year. The bonds carry an interest rate of 7.5% and have a far-off maturity date of 2029. AMC had previously been seeking to issue $500 million of bonds with a 10.5% interest rate. At the start of 2022, Aron explained that the company’s goal was to refinance some of its debt in order to reduce “interest expense, push out some debt maturities by several years and loosen covenants.”
So, with $7.25 million freed up, the question is: What will AMC do with the money?
Further acquisitions don’t seem likely. In March, the company announced that it had acquired 22% stake in Hycroft Mining (NASDAQ:HYMC). The company dished out $27.9 million to acquire 23.4 million units of HYMC. Each unit came with one common share and one common share purchase warrant. The shares were priced at $1.19 and the warrants were priced at $1.07 with a five-year term.
Having already made a big acquisition, AMC will more likely use the $7.25 million for general corporate purchases, such as improving theaters. More details may be revealed when the company reports earnings on Aug. 4th.
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.
