AMC Entertainment bonds and equity softened today after the company announced that it will no longer be seeking stockholder approval to issue an additional 500m shares. While the movie theater chain still plans to issue 43m in shares through an at-the-market equity offering, capital raising needs could persist given expectations that pro-forma liquidity will be tested by negative free cash flow over the next year, noted three sources familiar with the matter. 

The borrower’s USD 1.53bn 12% second lien subordinated bonds due 2026 traded as low as 85.438 to yield 16.214% today from trades at 87 to yield 15.709% yesterday (27 April), according to MarketAxess. The bonds later inched up slightly to 86 to yield 16.031%. 

AMC’s equity traded this morning at USD 10.90 per share and a market cap of USD 4.751bn, down 4.88% from yesterday’s close. 

Based on the current share value of roughly USD 10.90 per share, the 43m of new shares is worth USD 468m. With an additional 500m shares, the company’s equity offering would have been worth USD 5.9bn–which could have taken out the company’s debt stack of USD 5.4bn, the sources said. 

AMC also provided preliminary 1Q21 earnings information. The company expects first quarter revenue to total roughly USD 148.3m, compared to USD 941.5m in 1Q20. Adjusted EBITDA is expected to fall between negative USD 301.7m and USD 294.7m for the quarter, compared to positive USD 3.1m in 1Q20.   

As of 31 March, AMC estimates liquidity at USD 1.025bn through USD 813.1m of cash and USD 211.9m of revolver availability. 

The company could burn USD 1.8bn of free cash flow in 2021, assuming estimates for negative USD 298m of adjusted EBITDA, less USD 175m in capex and USD 335m in interest expense, two of the sources said. 

Factoring in the company’s current liquidity of USD 1.025bn and the additional USD 468m, the company falls just short of covering USD 1.8bn, the sources added.

At normalized 2019 levels, AMC would be burning USD 82m in free cash flow through positive USD 771m of adjusted EBITDA less USD 518m of capex less USD 335m of interest expense. If the company can continue turnaround operations, then its liquidity needs for the year could fall somewhere in between, the sources said. 

Adam Aron, CEO and President of AMC, said in a press release that he expects the planned share sale to fulfill AMC’s 2021 liquidity requirements. “This assumes an expected recovery in the patronage of movie theatres in the second half of this year. In asking AMC shareholders to vote on approving another 500 million authorized shares, we noted that our goal was to increase longer term optionality and flexibility for AMC, but that we had no intention of actually issuing any of those 500 million shares in the immediate term,” Aron added. 

AMC did not respond to a request for comment.

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