AMC Preferred Stock (NYSE:APE)
Trading volume for AMC Preferred Stock (NYSE:APE) increased on its second day of availability as investors appeared to favor the preferred stock over the main stock under the company’s new dual-class structure.
Stock in APE was up 18.7% to $7.12 at 12:28 p.m. ET on Friday, while stock in AMC Entertainment (NYSE:AMC) was down 5.1 percent to $9.93.
What’s the Reason?
AMC Entertainment Inc. yesterday issued one share of APE to each shareholder in exchange for one share of AMC. Rather than issuing more common stock, the corporation issued preferred shares, creating a dual-class structure.
AMC Preferred Stock does not give owners any dividends or other returns, but it allows the movie theater chain to raise capital by selling more shares. Common stock sales had been halted in the past due to opposition from shareholders.
Stock dividends totaled 516.8 million shares; therefore, management still has 483.2 million preferred shares available to issue, out of a total authorized issuance of 1 billion. An amount equivalent to $3.5 billion at today’s APE price.
Management has not stated whether or not they intend to issue further APE shares, but given that the stock class was created solely to raise funds, this seems like a safe bet.
What’s Next?
One may make the case that AMC Preferred Stock is more valuable than AMC stock. If AMC were to declare bankruptcy and liquidate its assets, the preferred stockholders would be paid before the common stockholders but before the holders of the company’s debts. Given the disparity, I anticipate a convergence of the two share classes’ prices in the near future.
The pandemic may have passed, but AMC’s finances are still a mess. In the most recent quarter, it lost $117 million in free cash flow, and it still owes $5.4 billion, costing it about $320 million in interest each year.
Even if the movie theater business has shown signs of improvement, the company’s cash flow problems persist, so it’s not unusual for it to try to raise capital by issuing new preferred shares.
Featured Image: Megapixl @Hisdx15
Author Jowi Kwasu 
