AMC Secures $950 Million in Debt Financing

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Now that all of its theaters are reopened and it is no longer in crisis mode, the management of AMC Entertainment Group (AMC -2.48% ) takes steps to reduce the debt burden.

To quickly recap, AMC has suffered immensely from the prolonged temporary closures of its theaters during the pandemic. The company’s main source of income relies on bringing large groups of people together in person to watch movies. Unfortunately for AMC, this was considered the type of environment conducive to the spread of COVID-19. The temporary shutdowns have taken their toll on AMC’s finances.

To stay in business, AMC management made a series of decisions that raised billions of dollars through a combination of high-interest loans and the issuance of millions more shares to maintain the company’s solvency until operations can resume. The approximately $5.7 billion in debt it now has weighs heavily on this entertainment stock.

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AMC to refinance nearly $900 million in debt

Last week, AMC announced that it was looking to borrow $950 million in debt financing. The company will pay 7.5% interest on these funds, with the principal due in 2029. Initially, management planned to raise $500 million under these terms, but the response from lenders willing to agree must have been sufficiently important so that they increase the sum.

This new loan will be used to refinance the existing debt at high interest rates. AMC intends to use $500 million to repay the senior secured notes which mature in 2025 and carry an interest rate of 10.5%. Another $300 million will pay off two series of secured notes maturing in 2026 bearing an interest rate of 10.5%. Finally, it will use $73.5 million to repay secured notes due in 2026 that have a 15% interest rate if paid in cash. Collectively, the notes that AMC is refinancing hit the company for $95 million in pretax interest expense per year.

The new $950 million debt at 7.5% will cost AMC $71.25 million in pretax interest expense. Indeed, AMC’s pre-tax interest expense will decrease by almost $24 million, which is not a trivial amount. The move also gives AMC more time to resolve its revenue issues. Nearly $900 million of principal payments due between 2025 and 2026 will be extinguished and new debt will be due in 2029.

Given that AMC is still struggling to recover, these moves should be a significant advantage. Despite the economic reopening, the company is poised to lose several hundred million dollars in net income in 2021. Luckily for shareholders, AMC recently announced that it had reversed operating cash losses and gained 216 million in cash from operations in the fourth quarter.

AMC management still has work to do

This is yet another step in the right direction for the struggling theater chain. Management may be hoping this is the first of many debt refinancings that will reduce its interest charges, which totaled $328 million in the nine months ended Sept. 30. bleeding on the bottom line is cutting expenses.

Even after this refinancing, AMC still has more than $2 billion in debt on its balance sheet, with interest rates above 10.5%. If AMC can continue to improve its operating performance and use cash to shore up its balance sheet, it may be able to secure even better terms to refinance the rest of its debt.

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