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Why AMC Stock Bounced Back on Friday

By Rich Smith - Jun 11, 2021 at 10:30AM

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S&P relents (just a bit) on the theater chain's debt rating.

What happened

Shares of AMC Entertainment Holdings (AMC -0.15%) are bouncing back from their Thursday sell-off, rising 3.4% through 9:40 a.m. EDT today.

The reason: This morning, S&P Global Ratings upgraded the stock's credit from CCC+ to CCC-.

AMC movie theater.

Image source: AMC Entertainment.

So what

That may sound like bad news. (Shouldn't "minus" be worse than "plus," after all?) But in fact, the move is a two-step upgrade from AMC's previous rating, and indicates that the credit rating agency is a bit more confident today than it was yesterday about AMC's ability to eventually repay its more than $11 billion debt load.

To do this, says the agency, AMC must apply the cash it has gained from stock sales to pay down some of its debt, refinance the rest at lower interest rates, and benefit from higher revenue as moviegoers return to its theaters.

If all of that happens, says the credit agency, AMC may have "a path to a sustainable capital future."  

Now what

Three points need to be added to the above, however. First, obviously, this is a lot to ask of poor AMC. It was hobbled by a pandemic, and against all odds emerged from the recession without declaring bankruptcy -- but burdened with a boatload of debt.

Second, CCC- is not as bad a credit rating as CCC+, but it's still a junk bond rating. Don't make more of this news than it is.

Third and finally: The stock sales that S&P says AMC is depending upon to even start repaying its debt have inflated the company's share count by a factor of five, compared to the end of 2019. Even if the company succeeds in paying down its debt, it's that much less profit each individual shareholder can expect to earn from AMC.

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