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Joe Rennison, Alice Hancock and Robert Smith in London and Sujeet Indap in New York
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 anti-establishment messages from day traders, which forced hedge funds to drop their bets against troubled companies.
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