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AMC’s CEO Plans To Refinance Debt, Buy the Company Time for a Turnaround

AMC had to take high-interest loans in order to survive the Covid-19 pandemic.

After a rough couple of years for movie theaters, AMC’s  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report CEO Adam Aron wants to put his company’s debt on a diet.

In a Tweet on Monday that was later followed by a filling with the U.S. Securities and Exchange Commission, Aron detailed plans to “strengthen our balance sheet.”

Tough Times For Movie Theaters

Even before the ongoing COVID-19 pandemic, movie theater chains like AMC were having a hard time attracting customers, as viewers were increasingly choosing to stay home and watch films on the streaming service of their choice, only venturing out for franchises and blockbuster fare. 

The company had reported a net loss of $13.5 million in 2019, even as total revenue was up 2.4% to $1.44 billion from the year before. 

The onset of the pandemic was a nightmare for AMC (and everyone else, obviously), with theaters closing and audiences reluctant to sit in a crowded room with strangers. 

Box Office Mojo reports that in 2020 the total box office gross fell by 81.4%. Things improved last year, largely on the backs of franchise blockbusters such as the record-setting “Spider-Man: No Way Home.” Box office rose by 112.5% to $4,468,850,254, which while no doubt a rebound, is still a ways away from 2018’s eye-ball popping take of $11,889,341,443.

Meme Stocks To The Rescue? Kinda?

To survive these lean years, “AMC took on debt at high-interest rates,” Aron Tweeted. But now, the CEO says “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.” 

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AMC paid more than $320 million in interest on its borrowings in the nine months through September 30, which was up from about $219 million in the same period in 2019, as reported by Bloomberg. But fortunately for AMC, the company unexpectedly became a short-lived meme stock last year. 

If the early days of 2021 seem like a lifetime ago, that's completely understandable. But during the giddy early days of the meme stock movement, AMC was at one point sitting pretty at nearly $62.55 a share.  

Though shares would eventually bottom out to nearly $35 a share by November, this short-lived boost gave the company an opportunity to cut borrowings and sell shares to increase its liquidity. 

In the third quarter of 2021, AMC repurchased $35 million worth of debt that carried a minimum interest rate of 15%, according to Yahoo! Finance, in a deal that cost $41.3 million, but that is expected to reduce its overall annual interest on its debt by about $5.3 million.

According to its SEC filings, AMC owed nearly $73.5 million in the third quarter of last year, and had $5.4 billions worth of total corporate borrowing, with nearly half of that debt attached to interest rate of more than 10%. 

Aron commented on AMC's liquidity in the company's third-quarter earnings release.

“Our quarter-ending liquidity as of September 30, 2021, of more than $1.8 billion, including cash and our undrawn revolving credit lines remains at near-record levels, and also gives us comfort. Incidentally, we do not anticipate having to borrow under those lines of credit in the next 12 months," he said.