Jan 11, 2022 - Economy

AMC Entertainment's meme stock test

An AMC theater.

Photo: Valerie Macon/Getty Images

AMC Entertainment’s apes helped provide a lifeline — more than $1 billion in equity issuance — that’s kept the movie theater operator out of bankruptcy.

The big question: Whether that help extends to the debt market.

Why it matters: CEO Adam Aron’s new year’s resolution is to replace billions in high-interest rate debt with something cheaper — an effort that could provide a litmus test for the limits of the meme stock mob’s power to rescue companies.

  • Any attempt to tap the debt market to refinance this year may serve as a dry run for AMC's more existential need to refinance billions coming due a few years down the road.

Be smart: Most high-yield bonds and all leveraged loans — the markets where highly indebted corporates like AMC borrow money — are not available to the retail investors that powered the meme stock mania. That means it’s mainly just institutional investors who buy the debt.

State of play: While meme stock prices are divorced from fundamentals, we haven't (yet) seen an equivalent phenomenon in the debt market.

  • Unlike stock, buying debt at its face value offers no upside. Those debt investors just want confidence the company can pay its coupons for however many years the bond is outstanding, and then have the wherewithal to repay the money at the end.

Between the lines: Pandemic-hit businesses like cruises and airlines have tapped the debt market fervently over the past year. But many of these companies don’t sit in industries battling collective decline the way movie theaters are fighting off streaming. And they have valuable physical assets, whereas there's uncertain demand for big-box retail spaces like movie theaters.

  • Importantly, AMC also has lower credit ratings from agencies like S&P Global and Moody’s — which many investor mandates are tied to.

The bottom line: Aron is aware of the limitations of meme stock status — his tweets' pleading tone acknowledge as much.

Go deeper: Meme stock traders' next chapter

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