It’s been a disastrous year thus far for AMC Entertainment (NYSE:AMC), as shares of the movie theater chain are already down by about 30%. This is more than likely due to the dilutive measures that the company has taken in recent weeks.
This morning, Citigroup cut its AMC stock price target to $4.10 from $5.75 while maintaining its “sell” rating. This comes after Citigroup lowered its price target to $4.75 from $15.50 in September and then raised the target back up to $5.75 in November.
The financial services firm noted that its price target assumes that AMC will pay down some of its debt through equity offerings. That’s exactly what AMC has been doing.
On Dec. 11, AMC announced that it had completed a $350 million at-the-market (ATM) offering by selling 48 million shares at an average price of $7.29 per share. The company then turned around and repurchased debt or exchanged debt for equity, resulting in a liabilities reduction of $62.28 million.
AMC Stock: Citigroup Lowers Price Target to $4.10
However, the dilution didn’t end there. On the very next day, AMC disclosed that it had issued 1.56 million shares in exchange for $12.28 million in principal amount of its notes due in 2026. The exchange was part of privately negotiated exchange agreements with a lender. AMC warned that it “may engage in similar transactions in the future but is under no obligation to do so.”
On Dec. 15, the company announced that it had issued 4.75 million shares between Dec. 12 and Dec. 14 in exchange for $36 million in principal value of its notes due in 2026.
Four days later, AMC disclosed that it had issued another 3.35 million shares in exchange for $25 million in principal value of its notes due in 2026. No other debt-for-equity exchanges have been announced since then.
AMC has a hefty debt pile which has been gradually reduced over the past few years. However, its debt still totaled $4.8 billion as of the third quarter. It’s clear that reducing debt is a top priority for the company, although it may come at the expense of shareholders.
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.
