• Lance

If you like AMC's stock, you'll love its bonds

Updated: Sep 28, 2021

AMC Entertainment Holdings is one of the leading meme stocks of today's unexpected and unpredictable stock market.

Meme stocks are generally defined as stocks with soaring prices driven not by company performance or stability, but by social media. Think GameStop and Reddit earlier this year.


AMC is the latest meme stock to rally in the market and catch investors' attention, despite the company's recent poor performance. AMC has posted net losses in three of the last four years; running a theater has not been profitable. So, while these problems have been there for a while, it's no surprise that 2020 was an awful year for AMC. With Covid-19 shuttering movie theaters across the country for nine months, AMC posted a net loss of $4.6 billion in 2020 - an almost 3000% greater loss than the previous year. Despite this, the stock price has rocketed 2000% from a low of$2.08 during last year's market crash to $40.84 as of August 27.


So, if you like the stock, you'll love AMC's bonds. This is a high-yield bond with the potential to reap the benefits of the recent meme stock craze. AMC's bond is Triple C rated by Standard & Poor's; the rating agency is saying the bond has definite bankruptcy risks, The bond matures on June 15, 2025. It originally sold with a coupon yield of 5.875% and currently yields an incredibly high 15.0% in an environment where most corporate high-yield bonds yield roughly 3.7%.


Even if you think AMC's stock is a disaster waiting to happen, it's important to understand its impact on AMC's ability to restructure its books and pay off its debt. The market has given AMC a blue-moon opportunity, and management is taking full advantage. In December, AMC raised $506 million from issuing 164.7 million new common stock shares. The proceeds allowed the company to pay off some of its $5.7 billion of outstanding debt. Then in January, a group of investors converted all $600 million of AMC's 2.95% convertible senior notes due 2026 into common stock. This was all good news for AMC's bondholders.


If management issues more stock and pays down more of its debt, one can see a healthier AMC company.


Management knows the company has many challenges, from the evolving Covid-19 situation to the rise of streaming services. But even with a book value of negative $1.4 billion, the company boasts a market cap value of $20.9 billion. Its three biggest competitors--Regal/Cineworld, Cinemark, and Cineplex--together have a combined market cap of just $3.6 billion.


This comparatively huge market cap gives AMC a lot of power to clean up its balance sheet, begin a roll-up strategy, buy up all its competitors, and consolidate the industry. The consolidation could help AMC turn profitable. That would be good news for AMC's bondholders, especially the ones collecting an annual yield of 15%.



If you find this bond interesting, please subscribe to our newsletter. We’ll send out another interesting bond every week.


 

More detail about the bond:


Articles about Theaters versus Streaming:

News about AMC issuing stock to pay down debt:


AMC Corporate Filing Information:


522 views0 comments