AMC aims for huge debt burden with special dividend ‘APE’

AMC Entertainment Holdings Inc. surprised Wall Street with the announcement of the special “APE” dividend after the market closed on Thursday.

This is, of course, a company that is no stranger to bold moves, as evidenced by the cinema chain’s $27.9 million investment in gold and silver miner Hycroft Mining Holding Corp. HYMC,
-5.37%
earlier this year. The dividend also marks the final step in a battle over equity offerings.

The AMC Preferred Equity Units are listed on the New York Stock Exchange under the symbol “APE,” a nod to the investors who turned the company into a meme stock, often calling themselves “monkeys” or “monkey nation.”

The special dividend is the latest stage in a journey that AMC Entertainment AMC,
+5.04%
from beleaguered pandemic victim to meme stock phenomenon. The status of AMC’s meme stock caused the company’s stock to skyrocket last year, before returning to Earth.

AMC shares closed at a record $62.55 on June 2, 2021, after rallying more than six times in two weeks. With a 7.2% drop in morning trading on Friday, the stock traded 72.3% below that record.

While AMC remains a cause célèbre for a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a firm that rates the finances of public and private companies.

The special APE dividend could help AMC reduce its massive debt burden, analysts say.

See now: AMC announces special dividend in the form of preference shares ‘Ape’; stock drops

The dividend “should be used opportunistically to” [reduce] total outstanding debt or otherwise,” Benchmark analyst Mike Hickey wrote in a note released Friday.

According to Hickey, AMC currently has approximately $5.5 billion in outstanding debt. “We suspect management is targeting leverage of 3x – 4x AEBITDA [adjusted earnings before interest, taxes, deprecation and amortization]. FY24 consensus is for $660 million in AEBITDA, which would translate to a total debt target of $2.3 billion, implying a total debt reduction target of $3.2 billion,” he added.

Benchmark has a hold rating on AMC.

“We admit that we are encouraged by the announcement of AMC’s preferred stock, as it will provide the company with an opportunity to repay its massive debt and make investments to improve its global footprint,” wrote Wedbush analyst Alicia Reese, in a note released Friday.

The special APE dividend essentially creates a two-for-one stock split, with half listed under AMC and the other half under APE, according to Reese. “AMC is pre-authorized to subsequently issue up to 4.5 billion additional preferred shares of APE to raise funds,” she wrote. “Once this transaction opens, we expect AMC to issue a portion of its authorized APE shares in cash to pay off the majority of its outstanding debt, making AMC a more attractive long-term investment.”

This would also give AMC the freedom to recover its quarterly dividend much earlier than usual, Reese added.

Wedbush has an underperform rating and a $4 price target for AMC.

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AMC will pay an APE dividend for each of its nearly 517 million outstanding shares, according to Chief Executive Adam Aron. “The issuance to our shareholders of AMC Preferred Equity tradable shares makes it clear who is part of our current shareholder base,” he said in the statement.

The company has faced unsubstantiated internet conspiracy theories that millions of synthetic AMC stocks are in circulation, as well as calls for a stock recount, according to a report in The Wall Street Journal.

The company, which issued an “I own AMC” NFT in January, will also issue an “I own APE” NFT to shareholders.

During a conference call to discuss the results, CEO Aron said AMC has the flexibility to issue more APEs in the future.

AMC also reported its second-quarter results after the market close, reporting a smaller loss that beat expectations and revenue in line with analyst forecasts.

“Presence trends benefited from a compelling blockbuster film and consumer demand for out-of-home experiences,” wrote Benchmark analyst Mike Hickey. “We believe the domestic cash register can drive growth in a recession scenario.”

“AMC has maintained some market share gains relative to the pre-pandemic average as it improves its footprint both nationally and internationally,” Wedbush’s Alicia Reese wrote. “Additionally, AMC is doing well as the macroeconomic headwinds are driving concession costs, utility costs and wages higher.”

During the conference call to discuss the results, AMC CEO Aron said there is a “shortage” of new major movie titles to be released in August and September, adding that “things will slow down for several weeks.” However, this will change in the fourth quarter, with a slew of big movies. These include Jamie Lee Curtis in “Halloween Ends,” Julia Roberts and George Clooney in “Ticket to Paradise” and Tom Hanks in “A Man Called Otto,” as well as the sequels to “Black Panther,” “Shazam” and “Avatar.”

See now: AMC may have been a darling of meme stocks, but weakness in some key areas has put the company on shaky ground

“So also the movie list for calendar year 2023 should make us all smile,” he added. “We are looking forward to the fourth quarter of 2022 and we are looking forward to the calendar year 2023 with absolute joy.”

Shares of AMC are up 17.9% in the past three months but are still down 36.3% so far, while the S&P 500 index SPX,
-0.47%
decreased by 0.1% in the past three months and by 13.1% this year.

Of the seven analysts surveyed by FactSet, three have a hold rating and four have a sell rating on AMC.

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