AMC Entertainment Holdings (AMC 9.56%) has had a roller-coaster couple of years dealing with extreme ups and downs, many directly related to the pandemic. A recent move by management was made in the hopes of getting the theater chain back on track and heading upwards.
AMC management has been dealing with a decline in attendance at its movie theaters for years. The issue was severely exacerbated in 2020 when its theaters were forced to close their doors for several months in response to concerns about the spread of COVID-19.
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Fortunately for AMC, the company's plight gained the interest of a group of retail traders who brought about the meme stock frenzy of 2021. AMC's share prices skyrocketed as it got caught up in the craze. Management smartly took advantage of the elevated stock price to issue new shares and raise much-needed cash.
Now, management is looking to deploy that cash in a way that could save the theater chain hundreds of millions in expenses per year.
AMC has over $5.2 billion in long-term debt
According to The Wall Street Journal, AMC is in advanced talks to pay down some of its high-interest debt. In addition to selling shares to raise cash during the pandemic, AMC borrowed billions of dollars at interest rates exceeding 10%. Already, in the nine months ended Sept. 30, AMC has incurred interest expenses of $328.3 million, an increase of 40% from the $233.7 million during the same period the year prior.
That's weighing heavily on a company that barely managed $727.6 million in revenue in the same nine-month period. In other words, AMC's interest expenses are 45% of revenue so far in fiscal year 2021. Overall, it had $5.2 billion in long-term debt as of Sept. 30. Of that total, $1.95 billion is for loans due in 2026 bearing only 3.1% interest, a rate that management likely considers more manageable.
Management's focus is on the over $2.9 billion in debt with interest rates between 10.5% and 17%. Those loans, with principal due between 2023 and 2026, generate the bulk of the company's interest expense. As of Sept. 30, AMC had $1.6 billion in cash and equivalents on its balance sheet. Other than meeting its near-term financial obligations, it's hard to imagine a better use of that cash than paying down high-interest debt.
Still, the move might not go over well with AMC shareholders. They balked at the idea of allowing management to raise more equity by authorizing an increased share count, a move that would have indeed served the company well when its stock price was at its low point. The shareholders seem more excited about moonshot ideas for AMC, like issuing non-fungible tokens (NFTs), forays into cryptocurrency, and such. Practical moves like paying down debt and reducing expenses are less enticing.
AMC's stock is already down 41% in 2022
Management has worked diligently during the pandemic, balancing the company's practical needs and maintaining shareholder interest. After all, without the billions infused by equity sales to enthusiastic investors, AMC would not have the luxury to consider paying down debt early. So it might be just as much in the company's interest for management to consider shareholders' impractical ideas as it would be to consider paying down debt.
Still, the stock price is down 41% year to date in 2022 as enthusiasm for the meme stock wanes. That could be why management finds this an opportune time to look after the company's practical needs with the cash it has on hand. The prospect of raising billions more through stock sales seems like an opportunity that will realistically be available to AMC again.
