Shares of AMC preferred equity units, or ‘APEs,’ rose 5% Monday, while the company’s common stock fell 7.5%, after the company unveiled plans to sell another up to 425 million APEs.
At current prices, the cinema chain could raise up to $1.6 billion from the sale of additional APEs, which was disclosed in a regulatory filing with Citigroup Global Markets acting as sales agent.
“The company intends to use the net proceeds, if any, from the sale of AMC Preferred Equity Units APE, -5.87% primarily to repay, refinance, redeem or repurchase the company’s existing indebtedness (including expenses, accrued interest and premium, if any) and otherwise for general corporate purposes,” said the filing.
AMC AMC, -14.52% issued the first APEs in August as a special dividend using the name created by the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.”
The APE special dividend in effect created a 2-for-1 stock split, with half listed under AMC and half under APE. The company issued an APE for each of its roughly 517 million shares outstanding.
Like the common stock, the APEs have been volatile since their trading debut, a fact even AMC acknowledged in the filing. In fact, it has fluctuated between an intraday low of $3.35 on Sept. 23 and an intraday high of $10.50 on August 22. It was quoted at $3.75 in midday trading Monday.
AMC, meanwhile, has fallen 55.7% in the year to date and is down 69% in the last 12 months. It has shed 19% of its value in past five days and is down 22% in the past month. The S&P 500 SPX, -1.03% has lost 23% in the year to date.
The stock has had a wild ride over the past few years, shifting from a pandemic victim when its theaters were closed across the world to a meme stock darling. While AMC remains a cause célèbre for a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a company that assesses the finances of public and private companies.
The filing documents for the new APEs reflect that volatility.
“The market prices and trading volume of our shares of Class A common stock and AMC Preferred Equity Units have been and may continue to be subject to wide fluctuations in response to numerous factors, many of which are beyond our control,” the prospectus says, adding that could cause purchasers “to incur substantial losses.”
If that’s not clear enough, it continues: “We believe that the volatility and our current market prices reflect market and trading dynamics not necessarily related to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our AMC Preferred Equity Units, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
Then there’s the risk of dilution, or rather further dilution, as AMC stock has seen significant dilution each time the company issued new shares during the peak pandemic years.
And that’s not all.
“A ‘short squeeze’ due to a sudden increase in demand for shares of our Class A common stock that largely exceeds supply and/or focused investor trading in anticipation of a potential short squeeze have led to, may be currently leading to, and could again lead to, extreme price volatility in shares of our Class A common stock and the price of the AMC Preferred Equity Units may also be subject to similar dynamics and volatility.”