The Financial Decision Behind AMC Entertainment's Wednesday Stock Move

Movie theater company AMC Entertainment Holdings AMC announced the repurchase of debt Wednesday in a move that could improve the company’s financials going forward.

What Happened: AMC Entertainment Holdings announced Wednesday it repurchased $72.5 million of 10% second lien subordinated secured notes due 2026 on the open market. The purchase was made in the second quarter, which ended June 30, 2022.

AMC paid $50 million to repurchase the debt, which represents a 31% discount to the face value. The move by AMC will save the company $7.25 in annual interest cost.

“Thanks to our passionate and supportive shareholders who helped u build a war chest of cash, and in light of the continued recovery of theatrical exhibition, we are very pleased to announce that the company was able to repurchase more than $72 million of second lien debt at a significant and beneficial discount,” AMC CEO Adam Aron said.

Aron said the move was part of continued strategies to strengthen the company’s balance sheet and to create value for shareholders in the future.

Related Link: AMC Entertainment Q1 Earnings Highlights: Revenuee And EPS Beat Estimates, CEO Highlights Strong 2022 Lineup 

Why It’s Important: AMC has been criticized for its high debt amounts by some analysts.

MKM Partners analyst Eric Handler reiterated a Sell rating and $1 price target after AMC’s first-quarter earnings. The analyst said fundamentals were improving for the company, but the capital structure remained a big question mark.

“The box office should get better from here, but it’s still the capital structure which drives our negative view towards the company’s shares,” Handler said.

Handler pointed to AMC’s $5.57 billion in debt.

“It could take many years for the company to grow into its capital structure.”

While the amount announced Wednesday was a small portion of overall debt, it could signal a plan to lower debt moving forward, something of which analysts may take note. 

AMC ended the first quarter with $1.2 billion in cash. The company could be more active in the coming months in paying back debt at discounted rates thanks to higher revenue and cash flow from increased attendance and a strong 2022 movie lineup.

Aron took to Twitter to highlight the debt payment Wednesday.

“Small steps forward are still steps forward,” Aron said.

Aron has been active on Twitter praising the success of movies at the box office in 2022 and the return of patrons to movie theaters. Aron also has taken on potential short sellers or people betting against AMC with the phrase “wen pounce,” referencing a potential short squeeze, and the hashtag “chokeonthat.”

AMC will report second-quarter earnings on Aug. 4, and the company could highlight the lowered debt amount then. 

AMC Price Action: AMC shares were trading 7.21% higher Wednesday afternoon at $17.54.