AMC

AMC Entertainment Holdings, Inc.

14.43
USD
17.99%
14.43
USD
17.99%
9.70 72.62
52 weeks
52 weeks

Mkt Cap 7.41B

Shares Out 513.33M

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This Move Could Save AMC Hundreds of Millions in Expenses

AMC Entertainment Holdings (NYSE: AMC) has had a roller-coaster couple of years dealing with extreme ups and downs, many directly related to the pandemic. A recent move by management was made in the hopes of getting the theater chain back on track and heading upwards. AMC management has been dealing with a decline in attendance at its movie theaters for years. The issue was severely exacerbated in 2020 when its theaters were forced to close their doors for several months in response to concerns about the spread of COVID-19. Fortunately for AMC, the company's plight gained the interest of a group of retail traders who brought about the meme stock frenzy of 2021. AMC's share prices skyrocketed as it got caught up in the craze. Management smartly took advantage of the elevated stock price to issue new shares and raise much-needed cash. Now, management is looking to deploy that cash in a way that could save the theater chain hundreds of millions in expenses per year. AMC has over $5.2 billion in long-term debt According to The Wall Street Journal, AMC is in advanced talks to pay down some of its high-interest debt. In addition to selling shares to raise cash during the pandemic, AMC borrowed billions of dollars at interest rates exceeding 10%. Already, in the nine months ended Sept. 30, AMC has incurred interest expenses of $328.3 million, an increase of 40% from the $233.7 million during the same period the year prior. That's weighing heavily on a company that barely managed $727.6 million in revenue in the same nine-month period. In other words, AMC's interest expenses are 45% of revenue so far in fiscal year 2021. Overall, it had $5.2 billion in long-term debt as of Sept. 30. Of that total, $1.95 billion is for loans due in 2026 bearing only 3.1% interest, a rate that management likely considers more manageable. Management's focus is on the over $2.9 billion in debt with interest rates between 10.5% and 17%. Those loans, with principal due between 2023 and 2026, generate the bulk of the company's interest expense. As of Sept. 30, AMC had $1.6 billion in cash and equivalents on its balance sheet. Other than meeting its near-term financial obligations, it's hard to imagine a better use of that cash than paying down high-interest debt. Still, the move might not go over well with AMC shareholders. They balked at the idea of allowing management to raise more equity by authorizing an increased share count, a move that would have indeed served the company well when its stock price was at its low point. The shareholders seem more excited about moonshot ideas for AMC, like issuing non-fungible tokens (NFTs), forays into cryptocurrency, and such. Practical moves like paying down debt and reducing expenses are less enticing. AMC's stock is already down 41% in 2022 Management has worked diligently during the pandemic, balancing the company's practical needs and maintaining shareholder interest. After all, without the billions infused by equity sales to enthusiastic investors, AMC would not have the luxury to consider paying down debt early. So it might be just as much in the company's interest for management to consider shareholders' impractical ideas as it would be to consider paying down debt. Still, the stock price is down 41% year to date in 2022 as enthusiasm for the meme stock wanes. That could be why management finds this an opportune time to look after the company's practical needs with the cash it has on hand. The prospect of raising billions more through stock sales seems like an opportunity that will realistically be available to AMC again. 10 stocks we like better than AMC Entertainment Holdings When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and AMC Entertainment Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of January 10, 2022 Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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