What happened
Shares of theater owner AMC Entertainment (AMC 2.91%) plunged 6% early Monday on news related to its recently created AMC Preferred Equity (APE +0.00%) units. At 11:10 a.m. ET, shares had recovered some of that drop but remained down by 4.9%.
NYSE: AMC
Key Data Points
So what
Investors holding out hope for a recovery in AMC's business were originally excited when the company issued the new equity units to existing shareholders as a special dividend. AMC Preferred Equity units (APEs) began trading on the New York Stock Exchange just over a month ago, on Aug. 22. But both the common stock and the preferred units have been declining ever since, down 26% and 33%, respectively. Now AMC is planning to issue even more preferred equity units, and that's not making common shareholders happy.
Now what
That's because those equity units could eventually be converted to common shares, and that would create massive dilution to existing common shareholders. AMC said in a filing it has now entered into an equity distribution agreement to sell up to another 425 million APEs. That would raise about $1.7 billion at its recent price.
NYSE: APE
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The company said the plan to sell the additional units should help provide it with financial flexibility. AMC said the funds will be used "primarily to repay, refinance, redeem or repurchase the Company's existing indebtedness."
That debt is one reason many investors aren't optimistic about AMC's future prospects. One of the company's main competitors recently declared bankruptcy, and streaming services are still keeping some customers from the theaters. Additionally, AMC has the ability to issue even more APEs in the future without the consent of shareholders. Investors likely won't be happy if that occurs, either.
