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AMC’s sudden surge makes winners of Silver Lake, Mudrick

The populist equity-market uprising that has fueled triple-digit gains for AMC Entertainment Holdings Inc. and other stocks is spurring big returns for established credit investors like Silver Lake Management and Mudrick Capital Management.

Those firms, along with others including Oaktree Capital and Centerbridge Partners have provided hundreds of millions of dollars in financing to the troubled theater chain in recent months as it has struggled to stay afloat amid the pandemic. Now, some are cashing in.

AMC said Thursday that Silver Lake would convert its bonds to stock at $13.51 a share after AMC rocketed past $19. The move will also reduce the theater chain’s debt by $600 million.

The once-risky debt investments are in some cases already reaping big gains after day traders helped fuel the sudden stock surge. The move may help the company secure additional liquidity by tapping the equity market at elevated valuations. AMC on Wednesday raised more than $300 million selling shares at around $4.80, well below the current price but more than double what it was just a week-and-a-half ago.

“The market did not believe AMC would be able to get through the downturn — we did,” said Jason Mudrick, whose firm last month received a combination of bonds and shares in exchange for providing $100 million of new financing. “With the rally, they need to start chipping away at their capital structure. AMC should go register more shares, sell as much stock as they possibly can and use the cash to repay debt.”

Representatives for AMC, Oaktree, Silver Lake and Centerbridge declined to comment.

AMC’s shares fell Thursday morning in New York after closing at $19.90 Wednesday, but are still trading at triple prices seen last week.

Oaktree and Centerbridge this month led a 400 million pound ($547 million) loan to the theater chain’s Odeon Cinemas unit that pays a rate of 10.75% in the first year before climbing to 11.25%, Bloomberg reported.

The deal is part of $917 million of funds assembled since mid-December as AMC tries to stay solvent until vaccines bring back moviegoers.

Last month the company signed a commitment letter with Mudrick Capital that called for the investment firm to buy $100 million of new secured bonds that pay 15% cash or 17% deferred interest. In exchange, Mudrick would receive a commitment fee equal to about eight million AMC shares. The deal also called for the fund to exchange $100 million of AMC bonds due 2026 for about 13.7 million shares.

“To the extent these companies can turn the stock price momentum into raising capital by issuing new shares, it’s hugely accretive to the credit story,” said Jason Dillow, chief executive officer of Bardin Hill Investment Partners, which manages about $9 billion in assets.

AMC climbed as much as 310% Wednesday to $20.36 before closing at $19.90.

“AMC has done a great job in capitalizing on investors’ appetite for its shares,” said Matt Zloto, co-head of U.S. high-yield research at CreditSights. Wednesday’s share sale “was well below the level at which the stock is trading at the moment, but ultimately it’s a good news for credit, especially if they plan use some cash proceeds to pay down debt.”

While the theater chain’s benchmark 12% bonds due 2026 also continued their rebound, they remain distressed, yielding more than 18%.

The company left roughly $800 million of financing on the table by selling shares ahead of Wednesday’s rally, according to Amine Bensaid of Bloomberg Intelligence. Timing the market can be difficult, however, given the commitments and arrangements between the company and banks for deals of this size, he added.

Despite the rally and share sale, AMC is far from out of the woods yet, according to S&P Global Ratings.

“The capital raises are a positive for the company, but it doesn’t change our view that some form of debt restructuring is likely,” said Scott Zari, an analyst at S&P. “AMC needs to significantly reduce its debt and interest burden after the pandemic or its capital structure will remain unsustainable,” but it is “unlikely that the company will be able to do that through equity raises alone.”

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