AMC Entertainment (NYSE: AMC, APE) is currently falling dramatically in pre-market trading following the firm announcing a massive capital raise, along with a debt for equity deal, the possible conversion of APE units to common shares, and finally – a reverse split. In simple terms, the company appears to have thrown everything and the kitchen sink at investors right before the holidays.
To start, the theatre chain will be raising $110 million in new equity via a financing to be conducted with Antara Capital, which is to be conducted in two tranches. The deal will see Antara acquire APE units at a weighted average price of $0.66 per share, a slight discount to the most recent $0.685 closing price per share of APE units.
The first tranche of the financing will see Antara, whom is already a shareholder of AMC, acquire 60.0 million APE units via the firms current at the market program. The second tranche meanwhile will see the fund acquire a further 106.6 million APE units. At the same time, Antara will convert $100 million in principal amount of second lien notes due 2026 for 91.0 million APE units, which will reduce the current outstanding debt of AMC by $100 million, and reduce future interest expenses by $10 million.
READ: AMC Entertainment Looks To Issue 425 Million APE Shares Under At-The-Market Offering
The second tranche, as well as the conversion of debt to equity, is subject to a hold period under Hart-Scott-Rodino. All told, the transactions will see Antara Capital increase its holdings in the company by 257.6 million APE units. The firm is to be subject to a 90 day hold period as part of the arrangement, and must also vote the shares in favor of the company at a special meeting.
On the topic of a special shareholder meeting, AMC is looking to already simplify its cap table. The firm is looking for approval to increase the amount of authorized AMC shares to permit the conversion of APE units into common shares, while also gaining the authorization to adjust its common share capital in the same manner it can already do with APE units.
READ: AMC Insiders Profited From ‘Apes’, Sold Shares For Over US$888 Million In Two Years
Effectively, the financing and debt-reduction being conducted by AMC appears to also have the secondary intention of allowing CEO Adam Aron to get what he initially wanted – free will with the firms cap table.
It appears Jim Chanos might be correct on his arbitrage theory after all.
Finally, the company is also looking to conduct a reverse split, which would see shareholders receive one post-split share for every ten pre-split shares held.
“Clearly, the existence of APEs has been achieving exactly their intended purposes. They have let AMC raise much welcomed cash, reduce debt and in so doing deleverage our balance sheet and allow us to explore possible M&A activity. However, given the consistent trading discount that we are routinely seeing in the price of APE units compared to AMC common shares, we believe it is in the best interests of our shareholders for us to simplify our capital structure, thereby eliminating the discount that has been applied to the APE units in the market,” commented Aron on the transaction.
Too bad shareholders don’t feel the same way.
AMC Entertainment last traded down 23.96% in pre-market trading at $4.03.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
