AMC is targeting massive debt burden with special dividend “APE”.

AMC Entertainment Holdings Inc. surprised Wall Street by announcing its “APE” special dividend after the market close on Thursday.

This, of course, is a company that’s no stranger to making bold moves, like the cinema chain’s $27.9 million investment in gold and silver miner Hycroft Mining Holding Corp. HYMC shows.
earlier this year. The dividend also marks the latest move in the stock issuance battle.

AMC Preferred Equity Units will trade on the New York Stock Exchange under the symbol “APE,” a nod to the investors who have turned the company into a meme stock and often refer to themselves as “monkeys” or “monkey nation.”

The special dividend is the final leg in a journey that AMC Entertainment AMC,
from beleaguered pandemic victim to meme stick phenomenon. The status of AMC’s meme stock sent the company’s stock skyrocketing over the past year before returning to earth.

AMC shares closed at a record $62.55 on June 2, 2021, after rallying more than six-fold in two weeks. After falling 7.2% on Friday morning, the stock traded 72.3% below that record close.

While AMC remains a celebre to a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a firm that ranks the financials of public and private companies.

According to analysts, the APE special dividend could help AMC reduce its massive debt burden.

See now: AMC Announces Special Dividend In The Form Of “Ape” Preferred Stock; stocks fall

The dividend “should be used opportunistically [reduce] Total debt or otherwise,” benchmark analyst Mike Hickey wrote in a note released Friday.

According to Hickey, AMC currently has approximately $5.5 billion in outstanding debt. “We suspect that management is targeting leverage of 3x to 4x AEBITDA [adjusted earnings before interest, taxes, deprecation and amortization]. Consensus for FY24 is $660 million in AEBITDA, which would equate to a total debt target of $2.3 billion, which would translate to a total debt target of $3.2 billion,” he added.

Benchmark has a hold rating on AMC.

“We recognize that we are encouraged by AMC’s preferred stock announcement as it provides the company with an opportunity to repay its massive debt and make investments to enhance its global footprint,” Wedbush analyst Alicia Reese wrote in a statement released Friday .

The actual APE special dividend, according to Reese, will result in a 2-for-1 stock split, with half listed under AMC and the other half under APE. “AMC is pre-authorized to then issue up to an additional 4.5 billion shares of APE preferred stock to raise cash,” she wrote. “Should this transaction commence, we expect AMC to issue a portion of its authorized APE shares for cash to pay off the majority of its outstanding debt, making AMC a more attractive long-term investment.”

It would also put AMC in a position to reintroduce its quarterly dividend much earlier than usual, Reese added.

Wedbush has an Underperform rating and a price target of $4 on AMC.

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According to Chief Executive Adam Aron, AMC will pay an APE dividend for each of its nearly 517 million shares outstanding. “The issuance of AMC Preferred Equity tradable units only to our shareholders clarifies who is part of our current shareholder base,” he said in the statement.

According to a Wall Street Journal report, the company has faced unsubstantiated internet conspiracy theories that millions of synthetic AMC shares are floating around, as well as calls for a stock recount.

The company, which issued an I own AMC NFT in January, will also issue an I own APE NFT to shareholders.

During a conference call to discuss the results, CEO Aron said AMC has the flexibility to issue additional APEs in the future.

AMC also released its second-quarter results after the close, reporting a smaller loss that beat expectations and revenue that was in line with analysts’ forecasts.

“Admissions benefited from a compelling blockbuster movie slate and consumer demand for out-of-home experiences,” wrote benchmark analyst Mike Hickey. “We believe that the domestic box office can provide growth in a recession scenario.”

“AMC has maintained some market share gains from its pre-pandemic average as it improves its presence both domestically and internationally,” Wedbush’s Alicia Reese wrote. “Additionally, AMC is coping well with macroeconomic headwinds that are driving up concession costs, utility costs and wages.”

During the conference call to discuss the results, AMC CEO Aron said there was a “shortage” of new major movie titles releasing in August and September, adding that “things will slow down for several weeks.” However, that will change in Q4 with a slew of big films. These include Jamie Lee Curtis in Halloween Ends, Julia Roberts and George Clooney in Ticket to Paradise, and Tom Hanks in A Man Called Otto, as well as the sequels Black Panther, Shazam, and Avatar.

See now: AMC may have been a meme stock darling, but weaknesses in a few key areas put the company on shaky ground

“So too should the film chart for calendar year 2023 make us all smile,” he added. “We look forward to the fourth quarter of 2022 and calendar year 2023 with absolute excitement.”

AMC’s stock is up 17.9% over the past three months but is still down 36.3% year-to-date, while the S&P 500 index SPX,
is down 0.1% over the past three months and down 13.1% this year.

Out of seven analysts polled by FactSet, three have a hold rating and four have a sell rating on AMC.

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