By Dade Hayes
In a New Year’s resolution shared on Twitter, AMC Entertainment CEO Adam Aron vowed to try to refinance the company’s debt and strengthen its balance sheet.
He noted that in response to the pandemic, in 2020 and early 2021, the top movie theater circuit took on debt “at high interest rates to survive.” Aron said he hopes to make progress on paying down or reorganizing those obligations this year.
Investors responded positively to his post, sending AMC’s shares up for the first half of the trading day, but they lost ground to close at $26.52, down 2.5%. Trading was light on a day that is a holiday for many companies and institutions, the observance of New Year’s Day.
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AMC’s stock, famously, has been on a wild ride over the past year, becoming a meme darling for individual investors organized on Reddit. It reached a high of $72.62 last spring, a dramatic rally from its $2 level in the dark final days of 2020 amid months-long Covid closures.
The buoyancy of the company’s stock has occurred against a foreboding backdrop. While Spider Man: No Way Home has delivered massive box office returns, there are major existential questions looming over the future of commercial moviegoing. Total theatrical revenue in 2021 was $4.5 billion, which is less than half of pre-pandemic levels. The altered landscape makes addressing AMC’s financials an especially urgent priority.
“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,” Aron wrote. “With an improving financial position, one of our 2022 goals is to strengthen our balance sheet. There is no guarantee of success, but we will try very hard to get this done. We are always thinking of creative ways to make AMC’s future more secure.”
In AMC’s most recent quarterly report, for the period ending September 30, the company said it had almost $5.2 billion in debt as well as hundreds of millions in lease obligations. While $1.95 billion of the debt carries a reasonable corporate interest rate of 3%, much of the remaining amount is at much higher interest. About $1.5 billion is at rates toggling between 10% and 12% and another $800 million is at 10.5%, for example.
Even before Covid upended the entertainment business and the world in general, the company’s debt load had concerned many Wall Streeters and industry observers.
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Eric Handler, an analyst with MKM Partners, has had a negative rating on AMC, and a 12-month price target of $1 on its stock. The company’s balance sheet is his primary complaint. In addition to debt, Handler noted in a December report, the company issued additional shares in order to capitalize on the meme-stock frenzy, which resulted in a five-fold increase in the outstanding amount of shock and, therefore, dilution for investors. Even if box office revenue returns to previous levels, he wrote in the report, “getting back to peak results is not going to be anywhere near close enough for AMC to grow into a reasonable multiple.”
Here are Aron’s tweets:
MY NEW YEAR’S RESOLUTION FOR AMC. 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. 1 of 2 pic.twitter.com/f9Zgy8CYgh
— Adam Aron (@CEOAdam) January 3, 2022
WITH AN IMPROVING FINANCIAL POSITION, one of our 2022 goals is to strengthen our balance sheet. There is no guarantee of success, but we will try very hard to get this done. We are always thinking of creative ways to make AMC’s future more secure. 2 of 2 pic.twitter.com/tLTPa6mjGs
— Adam Aron (@CEOAdam) January 3, 2022
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