AMC rises as S&P upgrades the Reddit favorite, citing a path to sustainability for the theater operator
AMCshares rose as much as 8% early Friday after S&P Global Ratings raised the company's credit rating.
- The credit rating was upgraded to CCC+ from CCC- but leaves the rating still within a speculative grade.
- Fundraising by AMC and prospects for more people buying movie tickets helps improves AMC's financial picture.
AMC shares climbed Friday, bolstered by an upgrade of its credit rating at S&P Global Ratings which said fundraising by the company should help put the movie-theater chain on steadier financial footing.
Shares of AMC gained 6.3% to $45.51 in premarket trade and rose as much as 8%. The company's rating was lifted to CCC+ from CCC-, a move that still keeps the rating within the high-risk, or so-called junk bonds, category. Key to the improvement was AMC's raising of $1.8 billion in total equity this year, including $818 million in proceeds last week.
"If the company uses the majority of these proceeds for debt reduction and refinances the expensive debt raised during the pandemic, it will materially reduce its interest burden, cash burn, and leverage," said Scott Zari, a credit analyst at S&P Global Ratings, in a statement released Thursday. "This, coupled with our expectation that theater attendance will likely significantly improve in the second half of 2021, provides a path to a sustainable capital structure."
AMC has cashed in on its status as a meme stock, with its share price zipping higher in recent weeks as numerous retail investors from social media sites such as Reddit's WallStreetBets pour millions of dollars into its shares and band together to profit off short squeezes they create against hedge funds betting that the share price will fall. The stock has a 21% short interest rate, according to MarketBeat data.
S&P Global said AMC had a monthly cash burn of $120 million in the first quarter of this year. It now sees the company as having sufficient liquidity to maintain its operations while attendance at its movie theaters grows. S&P Global foresees the US box office begin the third quarter at about 50% to 75% of 2019 levels then in the fourth quarter peak at 80% to 90% compared with the same period. Attendance, however, is unlikely to reach pre-pandemic levels on an annual basis until 2023, it said.
S&P Global has a positive outlook on AMC's credit, indicating it may raise the rating further if the company prioritizes reducing its heavy debt and interest burden.
Among AMC's fundraising efforts, last week it made $230.5 million by selling new stock to Mudrick Capital Management at a premium. The investment firm later dumped the acquired shares and called them overvalued, according to a Bloomberg report.
Meanwhile, six AMC executives made more than $8 million last week after selling shares of the company during a massive rally, according to filings with the Securities and Exchange Commission.
Renewed interest in AMC's stock was ignited in late May after its largest shareholder, private Chinese conglomerate Dalian Wanda Group, sold almost all of its remaining stake. Retail traders used that opportunity to buy more into the stock.
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