Shares of AMC Entertainment Holdings (AMC 17.99%) rose a dramatic 25% in the first few minutes of trading on Tuesday. They quickly cooled off, however, and were up 15% or so at 9:45 a.m. EST. A financing deal drove the early excitement.
The movie theater operator has been struggling amid the coronavirus pandemic. And while movie houses have been reopening following the government-mandated shutdown early in the crisis, the trouble is bigger than this one headwind. Indeed, customers haven't been willing to venture into theaters and risk catching the illness, and studios haven't been willing to release new films, reducing the attraction of going to the movies. It's a catch-22, and AMC has already warned that it could end up in bankruptcy before things turn around.
Which is where today's news comes in. AMC announced in a Securities and Exchange Commission filing that it issued $100 million in debt, to help it muddle through this rough patch, at least for a while longer. That said, the interest rate on the loan is a stiff 15%. The first interest payment isn't due until July, and AMC has the right to "pay in kind" by issuing additional bonds for a year and a half, though the interest rate would rise to 17%.
Still, this means that AMC has not only raised much-needed cash, but also given itself a little breathing room before it needs to worry about the cost of that capital. It's not surprising that investors were upbeat.
AMC is only appropriate for aggressive investors looking for a turnaround play. In fact, the current bond issuance, while important, highlights just how tenuous things are for the company today. These are not the rates and terms to which a financially strong entity agrees. Conservative long-term investors should steer clear.