Investors that converted AMC bonds to stock see value of holdings slide 30% in a matter of hours

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Investors that converted AMC bonds to stock see value of holdings slide 30% in a matter of hours


The group of investors that includes units of private-equity firm Silver Lake that opted to convert all $600 million of convertible bonds issued by AMC Entertainment Holdings Inc. into stock on Wednesday are now looking at a sizable decline in the value of those holdings.

AMC
AMC,
-50.50%

said the group converted the 2.95% notes due 2026 into Class A common shares at a conversion price of $13.51 a share. AMC’s closing price of $19.90 on Wednesday gave those shares a nice premium — but that has now vanished as the stock has been walloped in Thursday trade.

AMC said the conversion would lead to the issuance of 44.4 million shares, handing the investor group a paper profit of more than $281 million. But AMC’s share price tumbled to $9.67 on Thursday, or about 30% below the conversion price.

AMC is one of the heavily shorted stocks that has been caught up in the apparent short squeeze in shares of videogame retailer GameStop Corp.,
GME,
-35.05%

which had skyrocketed more than 1,600% in the past two-plus weeks amid support from investors on Reddit’s WallStreetBets message board.

That stock’s meteoric rise came to a screeching halt on Thursday, when major brokerage houses, including the discount brokers and Robinhood trading app that were popular with the Reddit investor group, moved to restrict trading in its stock, along with AMC and other names that had been caught up in the frenzy.

Interactive Brokers Group 
IBKR,
-0.87%

announced that as of midday Wednesday, it put GameStop, AMC, BlackBerry Limited
BB,
-36.37%
,
 retailer Express Ltd. 
EXPR,
-50.79%
,
 and Koss Corp. 
KOSS,
-32.74%

option trading into liquidation only due to the extraordinary volatility in the markets. That means investors could only unwind their positions, not create new ones.

Don’t miss: It isn’t just GameStop: Here are some of the other heavily shorted stocks shooting higher

“In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice,” the brokerage said.

Robinhood said it also moved to raise requirements for GameStop and AMC to 100%, emphasizing that Robinhood doesn’t allow shorting of equities or allow customers to trade naked options.

AMC’s rally had come at a surprising time for the world’s biggest cinema operator, which has come out of a year during which many of its theaters were in lockdown or operating at limited capacity and major studios refrained from releasing new blockbusters. The outlook for 2021 is not much better, according to Eric Schiffer, chief executive and chairman of Patriarch Organization and Reputation Management Consultants, and a restructuring expert.

See also: GameStop, AMC trading is now being restricted at TD Ameritrade, Schwab

“Most people would not want to put themselves in an indoor space for hours when there are variants (of the coronavirus-illness COVID-19) that vaccines may not even inoculate against,” said Schiffer. “The viability of the business prior to the market’s inflation of the stock hasn’t altered the calculus. If they do survive, it won’t be the same business. It will take years for them to recover back to where they were.”

For more, see: Trading frenzy in AMC stock may stave off bankruptcy but cinema operator still faces years of recovery

AMC has moved to opportunistically raise equity and capital through the pandemic and raised another $917 million earlier this week. Even with today’s selloff, the stock is up almost 400% in the year to date, far outperforming the S&P 500’s
SPX,
+1.99%

14% gain.



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