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AMC Surges as Deal With Mudrick Raises Cash to ‘Go on Offense’

(Bloomberg) — AMC Entertainment Holdings Inc. gained Tuesday, extending last week’s rally, after raising $ 230.5 million with a stock sale to Mudrick Capital Management as the movie-theater operator pledged to “go on offense” with acquisitions.The agreement with New York-based Mudrick is for 8.5 million shares of common stock at $ 27.12 apiece, 3.8% more than Friday’s closing price, AMC said Tuesday in a statement. The company, now an icon among retail traders, jumped as much as 23% to $ 32 at the open in New York trading. It traded at $ 29.98 at 9:35 a.m. The latest equity sale with Mudrick “sounds expensive” with debt and equity indicating an enterprise value of over $ 16 billion, Michael Pachter of Wedbush said in an email to Bloomberg. If it returns to pre-Covid levels, AMC could optimistically reach around $ 1 billion in earnings after adjustments. The highest attained in the past is $ 929 million in 2018, he said. “Mudrick must know something I don’t.”Read more: AMC Embrace of Day-Trader Crowd Fuels Dizzying Monthly GainAMC plans to use the cash proceeds from the sale for acquisitions of additional theater leases, as well as investments into AMC’s existing theaters, the company said in a statement. It is in discussions with multiple landlords of theaters formerly operated by Arclight Cinemas and Pacific Theatres, Chief Executive Officer Adam Aron said.Mudrick’s stock purchase comes with the caveat that the shares be “freely-tradeable”, meaning the firm could sell the shares at any point or in any size it chooses. That would provide Mudrick with 8.5 million shares that could be sold as soon as today.The investment advisor firm has made big bets on AMC in the past, helping the movie theater chain as it pushed through the pandemic. In January, the firm entered into an agreement to buy $ 100 million of new secured bonds in exchange for a commitment fee equal to about 8 million AMC shares. The agreement also called for Mudrick to exchange $ 100 million of AMC bonds due 2026 for about 13.7 million shares.Raising CapitalAMC’s bonds dropped after news of the new equity deal with Mudrick. The bonds due 2026 led the biggest losers in the U.S. high-yield market on Monday morning in New York, dropping nearly 3 cents on the dollar to 96 cents, according to Trace bond trading data.Read More: Mudrick Capital Gains $ 200 Million on AMC, GameStop BetsThe latest deal with Mudrick may help the company reduce rent and other operating expenses if it’s able to enter into new lease agreements. AMC has been negotiating with its landlords to amend terms of certain leases and avoid a potential cash crunch through the height of the pandemic.“With this agreement with Mudrick Capital, we have raised funds that will allow us to be aggressive in going after the most valuable theater assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities,” Aron said in the statement.This sale is the latest of several equity financings conducted by AMC during its meteoric rise this year. It follows the completion of an at-the-market offering in May and a bankruptcy-avoiding financing in January. Tuesday’s deal represents just 1.7% of AMC’s public float as of May 13, according to data compiled by Bloomberg.(Adds analyst commentary in the third paragraph, details on stock purchase agreement and company’s capital structure throughout. Updates prices.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.