AMC Entertainment Holdings is set to convert its preferred equity units (APEs) to common stock, a move that has been eagerly awaited by traders. The APEs were introduced last year as a means for AMC to raise funds and pay off debts. This came after the company faced a lack of votes to secure additional stock sales for capital raising. In addition to the conversion, AMC will issue common stock as a settlement payment to some shareholders, resolving legal claims related to the APE conversion plan. Once the conversion and settlement payment are completed, AMC will have the authorization to issue up to 550 million additional shares without requiring further shareholder approval, potentially enabling the company to reduce its debt balance.
The conversion of preferred equity units to common stock, along with the issuance of additional shares as a settlement payment, presents an opportunity for AMC to address its debt while its shares are still trading at a premium. This move follows a 10-for-1 reverse stock split implemented by AMC to reduce the number of outstanding shares, allowing for the potential issuance of more shares in the future. However, investors are concerned about potential dilution of their holdings as AMC issues more stock. AMC’s CEO, Adam Aron, maintains that raising money through these measures is necessary and highlights the past success of cash-raising initiatives, emphasizing the importance of the company’s financial foresight.
AMC’s stock experienced a decline of 26.4% in the previous trading session, contributing to investor apprehension. Nevertheless, the company’s shares saw a minor increase of 1.2% in premarket trading prior to the conversion. The completion of the conversion and settlement payment will provide AMC with significant flexibility in its stock issuance, enabling it to address debts and potentially improve its financial position.