Monday, August 8, 2022

AMC Day Trader Bets Bring Big Gains to Silver Lake and Mudrick Lenders

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Reddit’s army of day traders handed over hundreds of millions of dollars worth of gains to two major creditors of struggling movie theater operator AMC Entertainment, after investment firms traded risky debt against stocks whose value has skyrocketed.

The share price of AMC, the world’s largest cinema operator, climbed 300% to $ 19.90 on Wednesday, as individual investors pushed up the share price. This exceeded the trigger price on $ 600 million convertible bonds held by Silver Lake Group. The company has now swapped the debt – which carried 2.95% interest – for AMC shares priced at $ 13.51, according to regulatory documents.

As of Wednesday’s closing, shares in Silver Lake were already worth more than $ 880 million. “Silver Lake made the trade of a lifetime thanks to the basement bandits,” said a credit hedge fund manager.

Earlier this month, Mudrick Capital Management also swapped AMC debt for equity. The investment firm traded $ 100 million in debt for nearly 14 million shares, which are now worth $ 273 million.

In addition, Mudrick loaned the theater operator an additional $ 100 million at an annual interest rate of 15 percent. As a fee for committing to the deal in December, he also received an additional 8 million shares, which are now worth $ 164 million. The investor was already one of AMC’s major shareholders.

The frantic trading of AMC, GameStop and other stocks in recent days has been sparked by individual investors gathered through social media networks such as Reddit. AMC’s windfall profits for lenders contrast with some of the anti-establishment messages from day traders, which forced hedge funds to get away from their bets against companies in difficulty.

AMC renegotiated its convertible bond with Silver Lake last year, increasing the company’s seniority in the company’s capital structure. Trigger prices for converting debt to equity fell in September, after a continued decline in the company’s shares.

Movie operators have been shot down by the pandemic crisis, with lockdowns forcing them to shut down screens, while the accelerated adoption of streaming services has prompted many studios to release blockbusters directly to on-demand platforms.

AMC indicated how close it was to collapse earlier this week when its chief executive, Adam Aron, praised the nearly $ 1 billion raised in debt and equity over the past month as going the table“. The company now had enough cash to survive through July at current levels of footfall, he said.

As part of its fundraising, AMC on Wednesday completed the issuance of an additional $ 304 million in capital at a price of $ 4.80 per share.

The Kansas-based group operates more than 1,000 theaters, including UK chain Odeon. It was acquired by Chinese group Dalian Wanda in 2012 for $ 2.6 billion.

Following the rapid rise in the stock prices of companies targeted by Reddit users, speculation has also increased about what companies will do next.

Jason Mudrick, founder of Mudrick Capital Management, told Bloomberg News that AMC should use the rally to issue even more shares and repay investors in debt.

Silver Lake declined to comment. AMC and Mudrick did not immediately respond to a request for comment.


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