AMC’s Credit Rating Gets a Boost Thanks to Meme Stock Momentum
In the latest twist of meme stock mania, AMC Entertainment finds itself on the receiving end of a credit upgrade.
According to analysts at S&P Global Ratings, AMC’s risk of default has diminished following its strategic move to capitalize on the meme-stock frenzy, raising capital through equity markets.
While the company’s debt remains within the highest risk category, just shy of companies teetering on the brink of default, S&P Ratings has elevated its rating by two levels to CCC+, positioning it seven levels below investment grade. This shift underscores a reduced likelihood of default.
The driving force behind this upgrade is AMC’s adeptness at leveraging the momentum of online trader communities, notably those congregating on platforms like Reddit. In 2021 alone, the company has bolstered its coffers by over $1.8 billion through equity issuance, as reported by S&P.
Analysts Scott Zari and Rose Oberman noted in a recent assessment that this influx of funds provides AMC with the necessary liquidity to weather the storm while awaiting a resurgence in theater attendance, which has been dampened by the pandemic.
Moreover, the likelihood of AMC resorting to debt restructuring within the next 6 to 12 months has diminished, according to S&P, a sentiment largely reflected in the pricing of its bonds. Currently yielding at 9.2%, down from a staggering 20% in February, the bonds have already factored in this optimistic outlook.
With additional capital infusion and a more promising outlook for box-office returns, AMC may find itself in a position to refinance its pandemic-era debts at more favorable terms, further alleviating financial strain.
“If the company channels the majority of these funds towards debt reduction and refinances its pandemic-era debts, it stands to significantly alleviate its interest burden, cash flow pressures, and overall leverage,” the analysts remarked. “Paired with our optimistic projection of a substantial rebound in theater attendance by the latter half of 2021, this sets the stage for a more sustainable financial framework.”
In response to this news, AMC’s shares surged by nearly 7% in premarket trading on Friday, signaling renewed investor confidence. Meanwhile, futures for the S&P 500 and Dow Jones Industrial Average experienced marginal gains.