EXECUTIVE SUMMARY
- AMC announced on Tuesday morning that it is seeking to raise $500 million of 7YNC3 first lien notes and the deal was later upsized to $950 million. The stated use of proceeds is to refinance the company’s existing 10.5% 1L notes maturing in Apr-25 and Apr-26 as well as the Mudrick PIK Toggle 1L notes maturing Apr-26. As a result, the transaction will be debt/leverage neutral for AMC and provide benefits from reduced interest as well as an extended maturity profile.
- IPT on the new bond was originally in the 8% area and subsequently revised to 7.5% to 7.75%. We think fair value is ~7.5% and would be buyers at or above that level. We believe a ~150 bp pickup for AMC 1L 29s over CNK’s unsecured 28s (currently trading with a 6% YTM) makes sense given the extra duration, AMC’s more stretched capital structure and a healthy new issue concession. We also think this new issue warrants pricing wide to AMC’s Term Loan maturing in 2026, which is currently trading at ~91 for a yield to maturity with the curve of ~7.1%, given the extra 3 years of duration, fixed vs floating rate in a rising rates environment and the lower dollar price of the Term Loans providing some downside protection.
- While we remain constructive on the prospects of theatrical recovery in the medium-term, we believe that AMC is taking advantage of an abnormally strong 4Q21 print (preliminary release on Monday). We think that AMC’s year-end cash balance and impressive FCF performance in 4Q21 were bolstered by Spider-Man: No Way Home (including a positive working capital impact). The domestic box office has gotten off to a slow start in 2022, with several early releases delayed until later in the year due to Omnicron, so we think AMC will likely exhibit a step back in financial performance in 1Q22.
