AMC stock is down 40% on Monday: explore why

on Aug 22, 2022
Updated: Aug 31, 2022
  • AMC preferred equity units will debut on the NYSE today.
  • "APES" will potentially help the cinema chain pay off debt.
  • AMC stock is down roughly 40% on Monday morning.

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AMC Entertainment Holdings Inc (NYSE: AMC) is down nearly 40% ahead of what will be the debut of its preferred equity units on the New York Stock Exchange on Monday.

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APES to help AMC minimise debt

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The cinema chain is calling its preferred stock “APES”, which was distributed last week as a special dividend. In a recent Tweet, CEO Adam Aron said:

We believe APES should let AMC raise capital, pay debt and do more. Not good news for doubters.

The Leawood-headquartered firm is authorised to sell nearly half a billion more of these units without requesting additional approval from the shareholders. That will potentially help minimise the debt and long-term liabilities, which were worth over $10 billion at the end of its latest reported quarter.

Versus its year-to-date high, AMC stock is now down nearly 65%.

Is it like a stock split?

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The preferred equity, as per Jay Ritter – the Cordell Professor of Finance at the University of Florida is “effectively” a two-for-one stock split since each “APE” can, in the future, be converted into a common share of the entertainment company.

I would expect that once it becomes effective, the price per share should drop by about 50%. Just as happens normally with a two-for-one stock split.

AMC is also down this morning since the Wall Street Journal late last week said its British peer and owner of Regal Cinemas was considering filing for bankruptcy.

It might be worth buying AMC stock here at a discount, considering Goldman Sachs sees upside in its favourite meme stock to $34 or 200% from here.

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