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AMC ENTERTAINMENT HOLDINGS AMC S
May 29, 2021 - 6:11pm EST by
jcoviedo
2021 2022
Price: 26.12 EPS -3.29 -0.85
Shares Out. (in M): 478 P/E 0 0
Market Cap (in $M): 12,480 P/FCF 0 0
Net Debt (in $M): 4,277 EBIT -1,098 -32
TEV (in $M): 16,756 TEV/EBIT 0 0
Borrow Cost: Available 0-15% cost

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Description

Thesis

For the second time this year, AMC shares went parabolic last week on incredibly high equity volume and extraordinarily high call option volumes. Like the spike in late January, last week’s spike coincided with parabolic moves in other “meme” stocks like Beyond Meat and Gamestock. Influencers added fuel to the retail mania by encouraging more people to participate. While AMC’s revenue and EBITDA are almost certain to improve materially from 2020’s deeply depressed levels, AMC’s current stock price has more than priced in a complete recovery. Meanwhile, movie theaters remain a secular decline industry and AMC remains significantly over-levered. Trading at 22x 2019 EBITDA levels, AMC shares have significant downside from current levels. Pre-pandemic AMC shares traded between 7x and 10x forward EBITDA and generally toward the lower end of that range. CNK -- AMC’s closest peer -- trades at a little over 7x 2023 EBITDA. If we assume AMC can recover 2019 EBITDA levels by 2023 and the shares trade at 10x EBITDA, the shares would be worth around $7/share; at 7x EBITDA the shares would be worth around $2/share. While AMC has a reasonable borrow rate, borrow availability has tightened up in recent days. With AMC implied volatility having blown out to over 300%, we believe the best way to express this trade is to short AMC call options. For example, AMC June $30 calls can be sold for $6.50. When the mania burns out over the next week or two, AMC implied volatility should collapse along with the share price causing the call options to collapse in price.   

 



Capital Structure

 



Source: Goldman Sachs

Note: the bond prices in this table are from May 7th and are out of date. 

 

AMC’s debt maturities are well spaced out providing the company with a relatively comfortable pathway to normalizing the business over the next 2 years. With its recently completed atm equity offering, AMC has sufficient liquidity to survive to the end of 2022 even if the business remained at Q1 levels (it should improve significantly with COVID related restrictions being removed.)

 

 

Since the onset of the pandemic, AMC Management has done an incredible job in averting bankruptcy by tapping the capital markets and selling assets. AMC is unlikely to go bankrupt as a result of the pandemic which is not something that could not have been said 6 or even 3 months ago. AMC has taken the following actions to shore up its liquidity position:

 

1.

During the first quarter of 2020, drew down approximately $325 million (full availability) under existing revolving credit facilities.

  

 

2.

In April, issued $500 million of 10.5% first-lien notes due 2025.

  

 

3.

AMC worked with its landlords, vendors, studio, and other business partners to defer and/or abate significant expenses, including additional landlord negotiations to seek material reductions, abatements, and deferrals in its rent obligations.

  

 

4.

Introduced an active cash management process, which, among other things, requires senior management approval of all outgoing payments.

  

 

5.

In compliance with certain financial covenants related to our indebtedness, suspended shareholder cash returns, including the Company's stock repurchase program and dividend payments.

  

 

6.

Refiled tax returns under new Coronavirus Aid, Relief and Economic Security (CARES) Act provisions that are expected to result in approximately $19.5 million of cash tax refunds and refundable alternative minimum tax credits. AMC received approximately $10.5 million of net cash tax refunds in 2020 and received the remaining $9.0 million of net cash refunds during the first quarter ended March 31, 2021.

  

 

7.

Availed itself of various government COVID relief programs in our European markets.

  

 

8.

In July, successfully completed a debt exchange offer, which:

  

 

 

1.

Reduced principal amount of debt by $555 million;

  

 

 

2.

Reduced cash interest expense by $120 million in the first year following the exchange offer;

  

 

 

3.

Extended maturities on approximately $1.7 billion of debt until 2026; and

  

 

 

4.

Included issuance of $300 million of new 10.5% first-lien notes due 2026

  

 

9.

In August, announced the signing of a definitive agreement to sell its Baltic region theatre locations for approximately $77 million. AMC received approximately $43.9 million of gross cash proceeds for this sale in 2020.

  

 

10.

In September, launched an at-the-market (“ATM”) equity program to sell up to 15 million shares of Class A common stock, raising approximately $56.1 million.

  

 

11.

In October 2020, updated the ATM program to sell an additional 15 million shares of Class A common stock, raising approximately $41.6 million as of the end of October.

 

12.

In November 2020, updated the ATM program to sell an additional 20 million shares of Class A common stock, raising approximately $61.4 million as of the end of November.

 

13.

In December 2020, updated the ATM program to sell an additional 200 million shares of Class A common stock, selling approximately 48.9 million shares of the 200 million shares authorized and raising approximately $130.8 million as of the end of December.  This brought the total ATM equity raised in 2020  to $289.9 million before commissions and fees.

 

14.

In December 2020, reduced debt by $104.5 million associated the conversion of $100 million of second lien debt into approximately 13.7 million shares Class A common stock, and received a commitment to receive an additional $100 million of cash in January 2021 from the issuance of new first-lien debt financing in exchange for approximately 8.2 million shares of Class A Common stock.

 

15.

In January 2021, updated the ATM program to sell an additional 50 million shares of Class A common stock and completed the sale of all remaining shares authorized under the December 2020, 200 million share authorization, raising approximately $579.8 million as of the end of January.

 

16.

In January 2021, the conversion by holders of all $600 million of the Company’s 2.95% Convertible Senior Secured Notes due 2026 into shares of the Company’s Class A common stock at a conversion price of $13.51 which resulted in the issuance of approximately 44.4 million shares and reduced annual cash interest expense by $17.7 million. 

 

17.

In February 2021, AMC’s wholly-owned international subsidiary Odeon Cinemas Group Limited (“Odeon”) entered into a new £140 million and €296 million term loan facility agreement which provided approximately $411 million of incremental debt capital after the paydown of approximately £90 million and €13 million on the Odeon Revolving Line of Credit.

 

18.

In March 2021, repaid entire outstanding balance, approximately $212 million, under its $225 million revolving credit facility. 

 

19.

In April 2021, launched an ATM equity program to sell up to 43 million shares of Class A common stock, selling approximately 15.5 million shares and raising approximately $153 million as of May 5, 2021, before commissions and fees. This brings the total ATM equity raised in 2020 and 2021 to $1,022.7 million before commissions and fees. On May 13th, the Company press released that it has completed the ATM offering selling 43mm shares for $428MM at an average price of $9.94/share. 

 

20.

In May 2021, received the remaining cash consideration of approximately $31.9 million for the completion of the sale of our remaining equity interest in our theatres in Lithuania.

 

AMC’s share count pre-pandemic was around 104mm, it is now around 478mm! 

 

Company Overview

AMC has been written up numerous times on VIC over the years. Most recently, AMC bonds were pitched as a long by RSJ on 11/13/2020. That recommendation has turned out incredibly well and provides a good overview of how AMC dealt with its covid induced balance sheet crisis. 

 

This is how the company describes itself in its SEC filings:



AMC is the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. AMC operates theatres in 13 countries, including the U.S., Europe and Saudi Arabia.

AMC theatrical exhibition revenues are generated primarily from box office admissions and theatre food and beverage sales. The balance of its revenues is generated from ancillary sources, including on-screen advertising, fees earned from our AMC Stubs® customer loyalty program, rental of theatre auditoriums, income from gift card and exchange ticket sales, and online ticketing fees. As of March 31, 2021, AMC owned, operated or had interests in 945 theatres and 10,518 screens.

 

“The Reddit Meme Stock Squeeze”

 

For the second time this year, AMC shares skyrocketed after the company completed an ATM equity offering. Last week, AMC was 11% of all trading volume on the NYSE on Wednesday, Thursday and Friday. The recent surge started around the time the company completed its most recent ATM offering (press released by the company on 5/13.) Trading has been manic over the past 2 sessions with AMC trading 705mm shares on Thursday and 660mm shares on Friday. Over the past week, trading volume in AMC calls also became manic. On Friday alone traders bought 4,199,006 call options in AMC -- over 11% of all options traded across all exchanges that day.