AMC stock price imploded: are its 20% yielding junk bonds safe?

AMC Entertainment stock is still in trouble. It has dropped by almost 18% this year, underperforming the broader financial market by far as the Nasdaq 100 and S&P 500 indices have risen by over 10%. 

AMC is not the only media-related company that is in trouble. Warner Bros. Discovery (WBD) stock price has tumbled by 41% this year, bringing its total market cap to over $17 billion. AMC Networks is down by over 52% while Paramount Global (PARA) has dropped by 30% even as the merger with Skydance continues. 

AMC Entertainment earnings

The most recent important AMC news was its financial results, which came out earlier this month. These results showed that its revenue dropped to $1.03 billion in the last quarter from $1.34 billion in the same period in 2023. 

It also moved into a $32 million loss, a big reversal from the $8.6 million profit it made in the same quarter in 2023. Its adjusted EBITDA came in at $29.4 million from the previous quarter’s $182 million.

These numbers mean that the company is still struggling, partly because of the impact of last year’s strikes in Hollywood. This retreat was in line with the guidance that the company gave when publishing its financial results in the first quarter. 

Still, the management believes that AMC Entertainment is turning the corner, helped by the recent and upcoming blockbuster movies. Some of the biggest successes this year are the likes of Despicable Me 4, Twisters, Deadpool & Wolverine, and Dune. 

Unlike in its Q1 results when the management warned about the industry’s slowdown, Adam Aron, the CEO had an upbeat tone about the future. He said:

“The 2023 strikes impacted several movie titles early in 2024 and somewhat crushed our profitability January and May. But lookout world, June and July were decidedly different. And we believe the rest of 2024 and all into 2025 and all into 2026 also should be decidedly different.”

Dilution risks and balance sheet actions

The biggest risk that AMC investors must always be aware of is the company’s dilution, which has seen the number of outstanding shares surge to over 361 million from less than 10 million in 2020.

To a large extent, this dilution was expected since the company was forced to close its stores in 2020 and 2021 because of the pandemic. Without this dilution, the company would have moved in the same footsteps as Cineworld, which filed for bankruptcy. 

The dilutions, while painful to equity holders, have left a company that has over $700 million in cash. For a company in trouble like this, having a cash buffer is a very important thing, because it helps it to fund its operations and stay afloat.

AMC has worked to handle its finances. Just this month, the company managed to defer some of its maturities that were scheduled in 2026 to 2029 and 2030. In total, it restructured debts worth over $2.45 billion, leaving just a few maturities in these years. 

The expansion of these loans means that the lenders believe that the company will be able to make the payments. As part of the deal, the $1.8 billion that was scheduled to mature in 2026 was pushed to 2029 while the $580 million of second lien debt due in 2026 was refinanced with loans also due in 2029.

Investing in AMC Entertainment’s debt

Investors worried about AMC Entertainment’s dilution can still participate in the company by investing in its debt. In finance, debt is often seen as a safer investment, because in case of bankruptcy, bondholders receive some payments while equity holders are wiped out.

Investing in AMC debt would be a sign that investors believe that the company will continue as a going concern. In AMC’s case, there are high chances that it will continue doing well because the recent results showed that there is a demand for its services.

Most importantly, by negotiating and deferring its maturities, it means that the company will not have bankruptcy risks in the near term.

As a junk-rated company, it also means that AMC bonds have an enticing yield. Data by BusinessInsider shows that the debts maturing in 2026 yield 20% while those maturing in 2027 and 2029 yield 18% and 16%. It would make sense to invest in these bonds.

AMC stock price analysis

On the daily chart, we see that the AMC share price has moved sideways in the past few weeks. It has remained at the $5 range since May, when it tumbled from $12 as stocks went through a strong rebound. 

The stock is now consolidating at the 50-day and 100-day moving averages while the Accumulation and Distribution indicator is moving downwards, signaling that investors are still distributing. 

Therefore, the stock may remain under pressure in the near term, with the next point to watch being at $4.16, its lowest point on May 31st.