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Roaring Kitty stock rally could help pay down debt

Cars drive near an AMC theater in New York on March 29, 2023.

Leonard Muñoz | See Press | Corbis News | Getty Images

Can AMC Entertainment capitalize on a second meme craze?

The stock, alongside Stoppage of play, surged this week after “Roaring Kitty,” the man who inspired the massive short squeeze of 2021, went online for the first time in nearly three years. THE the return of Roaring Kitty, whose legal name is Keith Gill, has caused AMC shares to more than double since Friday’s close. They exceeded $6 on Tuesday afternoon.

The last time these retail investors rallied around AMC and its shares surged, the theater chain was able to avoid bankruptcy. Today, it has a chance to reduce its considerable debt.

CEO Adam Aron made three major acquisitions “in a relatively short period of time” after taking over the company in 2015, which included the Carmike, Odeon and Nordic cinema chains, said Eric Handler, chief executive of Roth MKM. AMC collectively spent about $3 billion on these deals.

While the acquisitions strengthened the size of AMC’s theater network, they also improved the company’s balance sheet, Handler said.

“So when the pandemic hit, they kind of suffered a double whammy because they were already heavily in debt and then they had to take on more debt to survive and give them more money,” Handler said .

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Since the start of 2022, AMC has paid off nearly $1 billion of its debt, but has about $4.6 billion remaining.

AMC has about $20 million due in 2024 and $118 million due in 2025, which is “not a hurdle,” according to Wedbush analyst Alicia Reese. But it’s the $2.96 billion expected to be collected in 2026 that needs the most attention.

“I think they’ll be able to renegotiate some of it, but a lot of it will probably just have longer deadlines,” Reese told CNBC.

Lenders agreed to renegotiate terms, but a rising stock price could allow AMC to strike better deals.

Currently, AMC pays about $100 million each quarter in interest costs, eating into its potential profits. While the box office is still recovering from pandemic-related production shutdowns and strikes, AMC has been unable to absorb its fixed expenses, such as rent, payroll and other operational costs, a said Eric Wold, senior analyst at B. Riley Securities.

“What matters to me is whether, as they did a few years ago, you can take advantage of this to strengthen their balance sheet?” he said.

AMC raised $250 million in new equity capital in a sale that closed Monday, just as the meme stock craze was reigniting. The movie theater chain sold 72.5 million shares in an at-the-market stock offering that began in late March. AMC sold the stock at an average price of $3.45 per share before commissions and fees. The majority of shares were sold before the stock price rose.

“The stock’s recent rise presents an additional opportunity to raise equity capital that can support liquidity and debt reduction, potentially moving AMC into a structure that could facilitate institutional support,” wrote Barrington analyst James Goss Research, in a note to investors. Tuesday.

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