AMC Entertainment Pushes Dilution Limits by Selling 123.2 Million APE Units in Q4 2022 Alone

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

With AMC Entertainment hurtling toward a potential recession in 2023 and the money-burning issue still in play, it’s not hard to see why the specter of bankruptcy hangs so high over the crashing stock. Now, the company has now provided details of its fourth-quarter capital increases, in an effort to paint a rosy picture of its cash position. However, this unfettered dilution is now getting on the nerves of discerning investors.

To wit, AMC Entertainment has now revealed that it raised total cash proceeds of $153.2 million by selling 123.2 million AMC Preferred Equity (APE) units in the fourth quarter of 2022. As a refresher, AMC declared a special dividend while revealing its earnings for the second quarter of 2022. 2022. This dividend took the form of preferred stock, with 1 APE awarded for each common share of AMC. Each APE unit entails the same rights as a company’s common stock. Further, these units may be convertible into common shares at some point in the future, pending the approval of the shareholders. As of December 19, 2022, the Company has raised total cash proceeds of $162.4 million by selling a total of 125.9 million APE units.

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During the fourth quarter, AMC used proceeds from the sale of APE units to reduce its chronic debt burden. Along with other debt reduction efforts, the company was able to reduce its total debt burden by approximately $180 million in 2022.

So far, so good. But then, why are some investors sounding the alarm about AMC? For starters, AMC has been positive free cash flow in only one quarter (Q4 2021) out of the past 11 quarters. Over the past five quarters, the company has drained $1.13 billion in cash. AMC ended the third quarter of 2022 with $895.8 million in available cash, including $211.2 million in undrawn revolving credit facilities. According to today’s press release, the company expects to end the fourth quarter of the year with a liquidity availability of between $725 million and $825 million.

See the problem here? The company has significantly diluted APE’s bid to raise $162 million to date. For example, as of October 2022, AMC’s debt load is approximately $5 billion. With APE units down 88 percent since its inception in August, the company has completely divested shareholder value for a new capital raise that equals just 3.24 percent of its debt load (as of October 2022). This is a shocking comeback!

Furthermore, even after this massive easing, AMC will continue to exit this quarter with a lower liquidity position than that at the end of Q3 2022. APE units are currently trading below the $1 price level. Any capital increase from this place offers only diminishing returns. Even worse, AMC faces the specter of a recession in 2023.

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AMC’s Adam Aaron vowed to pounce on short sellers back in May. If that’s what he meant by swooping in, we don’t have much to be optimistic about.

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