EXCLUSIVE: The nation’s largest theater chain AMC Entertainment is finalizing a deal with bondholders that would slash debt by up to $600 million, bring in $200 million in fresh cash and give it a lifeline into 2021, Deadline has learned.
A $500 million bond sale in April as the coronavirus kicked the nation’s economy into a ditch was meant to fund the exhibitor’s seriously-cash strapped operation through November. The Kansas-based company led by CEO Adam Aron is now approaching four months of zero revenue since shuttering theaters in March. It plans to open them on July 30 even as COVID-19 cases spike in states across the country and the summer release schedule was already shuffled several times.
There’s been some drama around the restructuring, which would see big private equity firm and current AMC bondholder, Silver Lake Partners, shifting into a higher grade of company debt called first lien. That has rankled other first lien holders including Apollo Global Management, Ares Management, Davidson Kempner Capital Management and Eaton Vance.
They would see their positions diluted.
Never have boring bonds in their various forms, which ususally hide in the background of business coverage, been as crucial as they are today in getting companies through the COVID-19 crisis.
A flurry of negotiations has resulted in AMC extending the deadline for a subordinated debt exchange several times. That exchange, key to the restructuring, calls for existing holders of subordinated notes (or bonds), which have traded as low as 20 to 30 cents on the dollar as AMC’s prospects dimmed, for new securities the company is offering at 65 to 72.5 cents on the dollar.
So these bondholders would still take a haircut. But the interest rates are higher and their new bonds, called second lien, are a step above subordinated in the pecking order of who gets paid back in the event of a bankruptcy.
The second lien bonds, however, would stand above Silver Lake securities and that gave the firm the right to veto the exchange. That’s because Silver Lake’s original agreement with AMC when it purchased $600 million in debt in 2018 stipulated that no new debt could be ‘layered’ above its own. As a result, Silver Lake’s debt is being upgraded to first lien so the exchange can proceed.
The exchange will lower AMC’s overall debt, which stands at a hefty $5.8 billion, and, consequently, its debt repayment obligations.
Silver Lake has also agreed to postpone by two years, to 2026 from 2024, AMC’s obligation to repay the $600 million.
Fresh cash will come from a separate sale of $200 million in AMC bonds to subordinated bondholders.
The first lien bondholders have offered to buy an additional $200 million in debt, which would result in a total $400 million of fresh cash. However, that move would not be possible under Silver Lake’s agreement with AMC.
Silver Lake has a seat on AMC’s board and a person close to the first lien bondholders said they feel the firm is getting preferential treatment and not acting in the company’s best interest.
Another person close to the situation, however, said Silver Lake had recused itself, that AMC is conducting negotiations with all classes of bondholders separately and in private and that Silver Lake is considering the best interests of AMC.
AMC Entertainment shares have been buoyant over the past few days on anticipation of the restructuring. On Thursday they rose another 3.16% to $4.57.
It’s a weclome uptick. As AMC and other theater operators struggle with the global pandemic, their stocks have been battered. Takeover speculation has also bubbled up. In May, Amazon was rumored to be eyeing AMC. Yesterday, A BofA Securities analyst reiterated a thesis that a theater chain buyout by either Amazon or Netflix makes sense.