A private-equity firm that owns a chunk of AMC Entertainment Holdings Inc.’s bonds is converting them into equity following a remarkable rally in the cinema giant’s stock, as AMC struggles to ward off bankruptcy amid closures of movie theaters during the pandemic.
AMC’s share price quadrupled this week after the company inked a substantial debt and equity raise and subsequently became the latest stock to be touted by the online community of retail investors who helped pump up GameStop Inc.
AMC said Thursday that Silver Lake Group LLC on Thursday has elected to convert the $600 million of convertible notes it owns into equity.
The Silver Lake swap illustrates how AMC and other volatile companies caught up in the retail trading mania can benefit from surges of bullish sentiment, in this case enabling AMC to cut a roughly a tenth of its roughly $6 billion in debt.
After closing at $19.90 a share on Wednesday, having more than quadrupled in value from the start of the week, AMC’s stock retraced much of its gains, closing at $8.63 on Thursday, down about 56.6%
AMC share trading was restricted on Robinhood Markets Inc. and other popular online brokerages Thursday, drawing sharp rebuke from individual investors.
Menlo Park, Calif.-based Silver Lake bought its unsecured notes in 2018, gaining a seat on AMC’s board. After the coronavirus pandemic forced AMC to temporarily close nearly all of its roughly 1,000 cinemas around the world, Silver Lake entered into a deal to convert its unsecured notes into a new first-lien convertible bond, meaning it would have first dibs on AMC’s assets in the event of a default.
Silver Lake also provided AMC with an additional $100 million loan to pad the company’s liquidity coffers, while a group of bondholders ponied up $200 million.
With many of its theaters still closed, AMC said in September that it was burning through more than $100 million of cash a month and warned late last year that it might have to file for bankruptcy if it didn’t raise a substantial amount of additional cash.
Then things started to turn in AMC’s favor, with the approval of coronavirus vaccines late last year raising hopes among investors that a future was in sight in which consumers would resume normal activities like going to the movies.
The company has since December inked a series of deals to increase its liquidity, including a $100 million loan from distressed-debt investor Mudrick Capital Management LP and a roughly $400 million loan backed by AMC’s U.K.-based Odeon subsidiary.
AMC has also raised $800 million by issuing equity since mid-December, selling out its latest shelf offering of 50 million shares on Wednesday right as the frenzy of trading by individual investors drove the stock skyrocketing.
Thanks to the $1.3 billion of debt and equity AMC has raised since December, “any talk of an imminent bankruptcy for AMC is completely off the table," AMC Chief Executive Adam Aron said on Monday, despite sparse ticket sales and many of the company’s theaters remaining closed.
Still, he cautioned investors that the company’s future cash needs are uncertain in light of the ongoing Covid-19 pandemic, the coronavirus’s mutating strains and the slow pace of vaccination.
Write to Alexander Gladstone at alexander.gladstone@wsj.com and Soma Biswas at soma.biswas@wsj.com
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