AMC Entertainment Goes Overboard on Dilution by Selling 123.2 Million APE Units in Q4 2022 Alone

Rohail Saleem
AMC Entertainment APE

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 possible recession in 2023 with a persistent cash burn problem, it is not difficult to gauge why the specter of bankruptcy looms large over the battered stock. Now, the company has provided new details on its capital raises in Q4, trying to paint a rosy picture of its cash position. However, this unfettered dilution is now taking a toll on the nerves of discerning investors.

To wit, AMC Entertainment has now revealed that it raised gross cash proceeds of $153.2 million by selling 123.2 million AMC Preferred Equity (APE) units in Q4 2022. As a refresher, AMC had announced a special dividend while revealing its Q2 2022 earnings. This dividend took the form of preferred shares, with 1 APE awarded for every AMC common share. Each APE unit entails the same rights as those conferred by the company's common stock. Moreover, such units might be convertible into common shares at some point in the future, pending shareholder approval. As of the 19th of December 2022, the company has raised gross cash proceeds of $162.4 million by selling a total of 125.9 million APE units.

During Q4, AMC used the proceeds from selling APE units to reduce its chronic debt load. Combined with other debt-reducing efforts, the company has managed to decrease its total debt load by around $180 million in 2022.

So far, so good. But then, why are some investors raising the alarm about AMC? For starters, AMC has been free cash flow positive in only 1 quarter (Q4 2021) out of the past 11 ones. Over the past 5 quarters, the company has burnt through $1.13 billion of cash. AMC ended its third quarter of 2022 with $895.8 million in available liquidity, including $211.2 million of undrawn revolving credit facility. As per today's press statement, the company expects to end its fourth quarter with available liquidity of between $725 million and $825 million.

See the problem here? The company has massively diluted its APE offering to raise a paltry $162 million so far. For context, as of October 2022, AMC's debt load was around $5 billion. With APE units down 88 percent since their inception back in August, the company has utterly eviscerated shareholder value to raise new capital that equates to just 3.24 percent of its debt load (as of October 2022). This is a horrendous return!

Moreover, even after this massive dilution, AMC will still exit this quarter with a lower liquidity position than the one at the end of Q3 2022. APE units are currently trading below the $1 price level. Any further capital raises from this venue only offer diminishing returns. What's worse, AMC faces the specter of a recession in 2023.

AMC's Adam Aron had vowed to pounce on short-sellers back in May. If this is what he meant by pouncing, we do not have much to be optimistic about.

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