Can AMC Entertainment Benefit from a Second Meme Craze?
AMC Entertainment, along with GameStop, experienced a surge in its stock price after Keith Gill, also known as “Roaring Kitty,” reemerged after three years of silence. This resurgence has led to AMC shares more than doubling since Friday’s close, reaching over $6 in afternoon trading on Tuesday. The last time retail investors rallied around AMC, the company was able to avoid bankruptcy. Now, it has an opportunity to tackle its substantial debt load.
In 2015, CEO Adam Aron made three major acquisitions shortly after taking over the company. These acquisitions included theater chains Carmike, Odeon, and Nordic, amounting to about $3 billion in total expenditure. While these acquisitions expanded AMC’s theater network, they also increased the company’s debt. As a result, when the pandemic hit, AMC faced a double whammy as it had to raise additional debt to survive and generate cash.
Since the beginning of 2022, AMC has paid down nearly $1 billion of its debt, but it still has around $4.6 billion remaining. While the $20 million due in 2024 and $118 million due in 2025 are manageable, the $2.96 billion due in 2026 requires significant attention. Wedbush analyst Alicia Reese believes that while AMC may be able to renegotiate a portion of the debt, it will likely need to extend maturities for a considerable amount.
Lenders have shown willingness to renegotiate terms, and an increase in AMC’s share price could enable the company to secure better deals. Currently, AMC is spending approximately $100 million every quarter on interest expenses, impacting its potential profits. With the box office still recovering from pandemic-related shutdowns and production strikes, AMC is struggling to cover fixed expenses such as rent, employee payroll, and operational costs.
The recent sale of $250 million in equity capital provides AMC with an opportunity to bolster its balance sheet and reduce debt. This equity offering coincided with the resurgence of the meme stock craze. By taking advantage of the recent surge in its stock price, AMC can raise funds to support liquidity and debt reduction, potentially attracting institutional support in the future.
In conclusion, while AMC Entertainment has made progress in paying down its debt, it still faces significant financial challenges. However, the current meme stock craze presents an opportunity for AMC to strengthen its financial position and attract institutional support. By capitalizing on the surge in its stock price, AMC can raise funds to reduce debt and improve its overall financial health.
