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Here's Some Good News for AMC Shareholders

By Parkev Tatevosian, CFA – Oct 4, 2021 at 8:43AM

Key Points

  • AMC has $5.5 billion in debt on its balance sheet.
  • AMC has incurred $239.6 million in interest expenses in the first six months of 2021.
  • Reducing interest expenses will go a long way in returning the company to profitability.

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AMC uses cash to pay off some high-interest debt, saving the company millions in interest expenses.

AMC Entertainment Group (AMC -2.14%) has some pretty optimistic shareholders. They have helped increase AMC's stock price by 1,800% in 2021. That's despite little justification for the increase when looking solely at the company's fundamental business metrics.

That being said, some good news came for AMC shareholders recently: management paid off some very high interest-bearing debt, which will reduce AMC's annual expenses by millions. 

A group of people watching a 3D movie in a movie theater.

AMC stock is up over 1,800% this year. Image source: Getty Images.

It's safe for AMC to start paying back some loans

On Sept. 30, AMC announced a repurchase of $35 million of its debt bearing a minimum 15% interest rate. The cost to repurchase the debt was $41.3 million, including principal and unpaid interest. As a result, AMC will save $5.25 million annually on interest expenses. That's undoubtedly good news for the battered movie theater chain, which has been devastated by the pandemic.

"The repurchase of some of our highest cost debt is one of the many steps that we are taking to optimally position AMC for the future," said Adam Aron, AMC's chairman and CEO.

Overall, management has skillfully navigated the coronavirus pandemic. The company was forced to shut its doors to moviegoers, which essentially brought its revenue to zero for several months. And because it was not feasible to reduce expenses to zero (you can't eliminate rent expense), the company was losing hundreds of millions of dollars each month. 

Raising cash became the most critical activity, and management did not disappoint. In the most recent quarter alone, the company raised $1.25 billion of new equity capital. As of June 30, AMC had $2 billion in liquidity on its balance sheet. And with nearly all of its movie theaters reopened and folks cautiously returning to watching films on the big screen, the worst-case scenario of running out of cash is all but eliminated for AMC. Therefore, it's safe for AMC to start using that money to pay back loans.

The next phase for AMC 

Paying back $35 million of its high-interest debt was a step in the right direction, but AMC still has a long way to go. As of June 30, the company had $5.5 billion on debt on its balance sheet.

That debt has cost the company $239.6 million in interest expenses in the first six months of 2021. To put that figure into context, overall revenue during the same time was $593 million. AMC's interest expense as a portion of revenue is still a heavy burden on the company. Thankfully, AMC also has $1.8 billion of cash on its balance sheet. If it can continue using the cash to pay off more of its highest-interest debt, it will go a long way in returning the company to operating profitably.

AMC is heading in the right direction in its recovery from the pandemic. Still, investors interested in buying the stock should wait until the company makes more progress in raising revenue and decreasing expenses. 

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

AMC Entertainment Stock Quote
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