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AMC shares explode after announcing a $100 million cash inflow

AMC theater

AMC shares jumped by nearly one-third yesterday after the movie theater operator announced that it secured a $100 million cash injection from New York-based Mudric Capital Management through a newly issued debt instrument.

In a press release published by AMC in the first few hours of the American stock trading session, the firm disclosed that it had negotiated $100 million in cash from Mudric in the form of a new first lien cash/payment-in-kind financing, which is an instrument that gives the lender the first claim if the borrower were to succumb to bankruptcy.

The instrument will generate a 15% annual rate if its semi-annual coupon is paid in cash, while the company also has the possibility of paying the first three installments in kind at a higher rate of 17% per year.

This means that the company can use an asset, good, or service to cover the payment, although, from the fourth installment and forward, payments will only be received in cash, according to the conditions disclosed by the 8-K form registered with the US Securities and Exchange Commission (SEC).

Meanwhile, Mudric also agreed to exchange a total of $100 million in existing AMC second-lien debt into common stock, with a total of 21,978,022 shares issued to settle the transaction.

Based on the terms of that exchange, AMC shares have been valued by Mudric at $4.55 per share – roughly two times the value of the stock’s closing price from last Friday.

Meanwhile, AMC shares advanced 31.3% during yesterday’s session, ending the day at $3.06 per share, still down $1.49 from the deal’s implicit valuation for the stock.

What’s next for AMC shares?

Yesterday’s corporate debt deal would be the latest of a series of measures taken by the American movie theater operator to strengthen its liquidity, as government-imposed lockdowns forced the company to shut down its network of venues, leaving the firm in a delicate financial situation as revenues quickly dried up.

Last year, the company was forced to raise approximately $800 million in new debt while also restructuring roughly $2.6 billion of its existing financial obligations to deal with the unprecedented downturn in its business. Moreover, AMC also sold 15 million shares at-the-market for a total of $56.1 million.

Meanwhile, during the third quarter of 2020, the firm reported a total of $120 million in revenue, nearly 91% less than the amount it brought during the same period in 2019, while losing as much as $905 million in that sole quarter.

Back then, AMC had a total of $418 million in cash and equivalents while its net quarterly cash burn ended at approximately $355 million.

This recent deal would give the firm an extra injection of liquidity that could help it in surviving the strong blow that the virus has dealt to its business, although the path to recovery remains challenging as the COVID situation persists in the United States despite the government’s ongoing efforts to vaccinate the country’s population at a fast pace.

In this regard, it is important to note that revenues from the US market accounted for nearly 74% of the company’s total sales in 2019, which makes the firm highly sensitive to the course of the pandemic in the North American country.

In the last few days, the number of daily contagions in the United States has been steadily declining, moving to 149,000 cases yesterday, down from a peak of 308,000 infected individuals in a single day on 7 January according to data from Worldometer.

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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.