The Ratings Game: AMC could face bankruptcy risk if APE conversion battle fails and strikes drag on, analyst warns


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AMC Entertainment Holdings Inc. reported better-than-expected second-quarter results on Tuesday, but could face the risk of bankruptcy if its stock conversion battle fails and Hollywood strikes drag on for months, warns Wedbush analyst Alicia Reese.

In its earnings release, AMC
said that the company currently has no AMC Preferred Equity units
available to be issued under its September 2022 at-the-market equity program. This came as something of a surprise to Wedbush. “We thought AMC had APE shares as a back-stop should its legal case to convert APEs to AMC shares fail, but this no longer appears to be the case,” wrote Reese, in a note released Tuesday. “Should its legal case fail, AMC could face bankruptcy risk if the current Hollywood labor strikes continue for months longer and cause Q4 titles to be pushed and a release slate hole in 2024.”

Related: AMC’s stock rallies after swinging to profit, boosted by highest quarterly attendance since 2019

Wedbush maintained its underperform rating and $2 price target for AMC. Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.

AMC’s plan to convert its AMC Preferred Equity units to common stock was blocked last month when a Delaware judge rejected a settlement that would have allowed the deal to proceed. The stock-conversion plan was part of the movie theater chain and meme stock darling’s ongoing battle to eliminate debt. 

Related: ‘Barbenheimer’ may have sparked euphoria, but ‘cash is very tight’ for AMC, CEO warns

AMC has filed a modification in an attempt to address the Delaware court’s concerns.

Wedbush’s Reese noted that AMC has chipped away at its debt in the second quarter. “AMC had $435 million in cash and $4.8 billion in debt at the end of the quarter, for net debt per share of $2.93, vs. $496 million in cash and $4.9 billion in debt at the end of the last quarter,” she wrote in the note Tuesday.

Related: AMC takes aim at massive debt burden with ‘APE’ special dividend

As of June 30, 2023, AMC’s available liquidity was $643.4 million.

In the company’s earnings release AMC CEO Adam Aron reiterated his recent warning that AMC faces liquidity challenges. “Even with our $643 million of quarter-ending liquidity, our ability to continue to raise capital and remain agile are absolutely vital to maintaining our strong recovery trajectory,” he said. “There are real and potentially severe liquidity hurdles on the horizon that we will need to overcome.”

Related: AMC has again asked NYSE and FINRA to look into the trading of its stock

Shares of the movie theater chain and meme stock darling rose 0.1% Tuesday, compared with the S&P 500 index’s
decline of 0.6%. The APEs fell 1.7% Tuesday.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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