AMC Entertainment Holdings Inc. announced its second-quarter results on Tuesday, surpassing expectations. However, according to Wedbush analyst Alicia Reese, the company could potentially face bankruptcy if its stock conversion battle fails and Hollywood strikes continue for an extended period.
In their earnings release, AMC revealed that they currently have no available AMC Preferred Equity units (APEs) to be issued under their September 2022 at-the-market equity program. This unexpected development caught Wedbush by surprise. Reese noted in a Tuesday report, “We previously believed that AMC had APE shares as a contingency plan if their legal case to convert APEs to AMC shares failed. However, it seems that this is no longer the case.” Should their legal case prove unsuccessful, AMC may face bankruptcy risk, especially if the ongoing Hollywood labor strikes persist for several more months, leading to a delay in Q4 titles and a release slate gap in 2024.
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Wedbush maintains its underperform rating and a price target of $2 for AMC. Among eight analysts surveyed by FactSet, three have a hold rating, while five recommend selling AMC shares.
Last month, AMC’s plan to convert their AMC Preferred Equity units into common stock was halted after a settlement allowing the conversion was rejected by a Delaware judge. The stock-conversion initiative was one of the movie theater chain’s strategies to tackle its debt, earning it attention as a meme stock phenomenon.
AMC Addresses Concerns and Faces Liquidity Challenges
AMC, the movie theater chain known as a meme stock darling, has taken steps to address concerns raised by the Delaware court. The company recently filed a modification in an attempt to tackle these issues.
According to Wedbush’s Reese, AMC has made progress in reducing its debt during the second quarter. At the end of the quarter, the company had $435 million in cash and $4.8 billion in debt. This translates to a net debt per share of $2.93, compared to $496 million in cash and $4.9 billion in debt at the end of the previous quarter.
As of June 30, 2023, AMC had available liquidity of $643.4 million. However, the company’s CEO, Adam Aron, reiterated his warning about the liquidity challenges that AMC is currently facing. He stressed the importance of raising capital and remaining agile to ensure a strong recovery trajectory. Aron expressed concern about potential liquidity hurdles on the horizon that need to be overcome.
Despite these challenges, AMC’s stock managed a slight increase of 0.1% on Tuesday, while the S&P 500 index experienced a decline of 0.6%. However, the APEs (AMC’s special dividend) fell by 1.7% on the same day.