BREAKINGVIEWS-AMC tries to stick the meme-stock landing

By Sebastian Pellejero

NEW YORK, July 3 (Reuters Breakingviews) - AMC Entertainment AMC.N enjoyed a crazed pandemic-era stock boom. Now comes the test of whether it was crazy enough. The largest U.S. movie theater chain’s share price never quite divorced from the struggles in its actual business the way other bubble beneficiaries have. Boss Adam Aron nonetheless wrung as much capital from the rally as he could. Tuesday’s announcement that lenders have budged on giving him a little more room is an implicit bet that an uptick in box-office sales can carry him the rest of the way.

After nearing collapse in early 2021, AMC became a favorite of everyday traders on message boards like Reddit, sending its stock surging over 2,800%. Aron seized the moment and then some, raising $2.5 billion through various forms of equity offerings, roughly double the company’s current market value.

Along the way, AMC closed underperforming theaters, renegotiated leases and more. Still, amid sagging movie-ticket sales and new share issuances, its stock fell 99% from 2021’s peak.

This week’s agreement with lenders will convert $143 million - and possibly as much as $337 million - of IOUs into equity while raising fresh cash. AMC has clinched debt swaps before, including a $164 million conversion last year as a brief return of retail enthusiasm spiked its stock. This time, though, looks different.

While the company still trades at a premium to peers like Cinemark, the gap is fading. Its fate now hinges on industry recovery. Second-quarter U.S. movie ticket sales jumped 37% year-over-year to $2.7 billion, according to Box Office Mojo, driven by surprise hits “Minecraft" and “Lilo & Stitch.” If this pace continues, they would reach $10.7 billion by next March, just shy of 2019’s $11.4 billion peak. Sequels to popular franchises like “Avatar” to “Wicked” are incoming. Meanwhile, studios are once again giving theaters a head start before sending films to streaming, typically 30 to 45 days.

On Wednesday, AMC’s lenders broadly consented to the refinancing deal. While their remaining debt gained some extra security, that so many accepted sinking shares and put up new money indicates some willingness to take a punt on these hopeful signals.

The company’s meme-era peers split largely into two camps: those like retailer Bed Bath & Beyond, which went bankrupt; and those like software-vendor-turned-bitcoin-treasury MicroStrategy, capitalizing on crypto enthusiasm. AMC’s path is uncertain. It has heavily diluted shareholders. Free cash flow remains elusive. Moviegoers simply may not show up. For now, though, it at least has a shot at finding a middle way.

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CONTEXT NEWS

On July 1, AMC said it would raise $223 million in new financing and convert $143 million of its bonds into stock, with the option to swap up to $337 million. Shares fell 8.5% following the announcement.

Under the deal with lenders, AMC also reached a settlement that ends ongoing legal disputes with a group of senior noteholders stemming from a prior debt restructuring in 2024.