AMC Stock (NYSE:AMC)
On Monday morning, news of the company’s newly minted AMC Preferred Equity (NYSE:APE) units caused theater owner AMC stock to drop by 6%. At 11:10 a.m. Eastern Time, the share price had regained some of the previous declines but was still down by 4.9%.
What’s the Reason?
When the corporation first released the additional stock units to existing shareholders as a special dividend, investors still hoping for a rebound in AMC Entertainment (NYSE:AMC) business were initially delighted about the development. A little more than a month ago, on August 22nd, trading of AMC Preferred Equity units, often known as APEs, got underway on the New York Stock Exchange. Since that time, however, the price of the ordinary stock and the preferred units has decreased, falling by 26% and 33%, respectively. The fact that AMC stock intends to issue even more preferred stock units is not going well with the ordinary shareholders.
This is because such equity units have the potential to be converted into common shares at some point in the future, which would result in significant dilution for the current common shareholders. AMC Entertainment (NYSE:AMC) said in a filing that it has engaged in an equity distribution arrangement to sell up to 425 million APEs. At its most recent pricing, it would bring in almost $1.7 billion.
According to the corporation, the strategy to sell the extra units ought to provide it with financial flexibility. According to a statement released by AMC stock, the money would be used toward “mainly repaying, refinancing, redeeming, or repurchasing the Company’s existing obligations.”
This debt is one of the reasons why many investors do not have a positive outlook on AMC’s future prospects. Recent events have seen one of the company’s most significant rivals file for bankruptcy. At the same time, streaming services deter people from visiting movie theaters. In addition, AMC stock retains the authority to issue an even more significant number of APEs in the future without first obtaining the shareholders’ approval. If anything like that happens, investors will not be thrilled, that’s for sure.
Featured Image- Megapixl @ Clewisleake