CEO Adam Aron said a court ruling Friday that makes it harder for AMC Entertainment to raise cash has serious implications for the circuit’s financial stability — a blowout ‘Barbenheimer’ weekend at the box office and surging share price notwithstanding.
“AMC must be in a position to raise equity capital. I repeat, to protect AMC’s shareholder value over the long term, we MUST be able to raise equity capital,” he wrote in an open letter to shareholders on Twitter (which was just renamed ’X’). “This is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025.”
As things stand, he said, “the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt” as it come due starting next year. “The risk of financial collapse is not whimsical,” he warned, noting that Regal parent Cineworld shareholders were wiped out in that chain’s bankruptcy.
The background: AMC’s army of vocal retail investors, which saved the chain from Chapter 11 during Covid, have balked at authorizing the company to issue new shares, since that would dilute their holdings. That is why Aron created APEs – AMC Preferred Equity units — which the company could issue (and sell) instead of common shares without authorization. But the price of the APEs fell, making them less effective for fundraising.
Shareholders voted in March to back a company proposal to do away with APES, converting them to common shares, and finally allowed AMC to sell shares. But some stockolders sued in Delware Chancery Court to block the conversion. They agreed to a settlement with AMC shortly after, but the settlement came under the purview of the same judge, who refused to approve it.
Aron acknowledged the dilution concern but said it’s more important to “put ourselves in a position to raise equity capital. That is what will make it more likely that first, we survive, and then that we thrive. In my view, the wisest way to defeat that short thesis is to take bankruptcy risk off the table, to the extent possible. And we do that by AMC being able to raise equity if, as and when needed.”
He said AMC and the plaintiffs in the case have modified the settlement. “If the court agrees it would be our hope to implement as soon as possible the plan approved in the AMC stockholders election in March.”
AMC stock is surging today on the weekend box office, but they shares started shooting higher in late trading Friday after the court’s ruling. The now tabled one-to-one conversion of APEs to common shares had favored APE holders. APEs are down 3%.
Aron’s open letter: