AMC’s Undue Haste in Seeking To Settle With Its Litigant Shareholders Has Now Drawn the Court’s Ire

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AMC Entertainment (NYSE:AMC) has been relying on financial wizardry and gimmicks to obfuscate and deflect attention from its persistent cash scarcity. This was the general take in the halls of finance last year when the company issued AMC Preferred Equity (APE) units that carried the tag of eventual convertibility to common shares, essentially creating a largely redundant security for the express purpose of raising more capital. Well, this complexity that AMC needlessly introduced into its capital structure is now coming home to roost.

Back in the summer of 2021, AMC issued a special dividend of 1 APE share to every common stockholder. Bear in mind that the rationale behind preferred shares usually relates to the precedence that this share class receives over common shareholders in a bankruptcy. However, by issuing preferred shares to every common stockholder of record in the summer of 2021, AMC essentially nullified this thesis. Instead, the company has been issuing APE units in droves to raise additional cash and pay down its debt. Since APE units came with an eventual convertibility tag, their price should have traded in sync with the company's common shares. Instead, the APE units have been suffering from a persistent discount relative to their common equity counterparts, suggesting widespread investor skepticism.

AMC raised around $2 billion from investors in 2021, significantly diluting its share base in the process. This dilution-on-steroids attracted well-deserved ire from investors. In March 2023, AMC sought authorization from its shareholders to increase its common stock