AMC’s Bonds Are Benefiting From its Meme-Stock Revival. That Could Be Bad News for Shareholders.

The rationale behind Wednesday’s rally—which saw shares nearly double after being temporarily halted for volatility—wasn’t clear. The valuation math might not work, as Barrons’ Al Root recently wrote, and it was likely fueled by options trading and the same message-board pile-on that sent GameStop and other heavily shorted stocks soaring earlier this year.

AMC’s bond-price gains have come despite the fact that Wall Street and investors have warned about the company’s debt burden for months. That introduces something of a puzzle:  While stock gains can help bondholders, for highly indebted companies they matter only to the extent that they can be monetized.

AMC took a step toward monetizing its rally early Thursday, disclosing in a filing that it would sell an additional 11.6 million shares in an at-the-market offering and use the proceeds for general corporate purposes, including the repayment of debt or making investments.

“A successful offering here would be a massive first step in deleveraging the AMC capital structure,” wrote analysts at CreditSights in a Thursday note.

When stock sales are used to repay debt, it amounts essentially to a transfer of cash from shareholders to bondholders, and it isn’t ordinarily seen as a good deal for equity investors—unless the alternative is a full restructuring of a company’s debt. 

While the company has also raised $230.5 million from a share sale to Mudrick Capital—which reportedly sold its stake almost immediately—it didn’t talk up debt-reduction plans much until Thursday. Instead, AMC highlighted plans to look at “acquisitions of theatre assets and leases.”

CreditSights argued that those acquisition plans may have been “CEO Adam Aron slanting the investment narrative in a direction to engender the support of AMC’s passionate retail base and get them to authorize additional share issuance.” AMC didn’t immediately respond to a request for comment.

Between Thursday’s announcement and the Mudrick sale, the analysts estimated that the company may be able to reduce its debt by $750 million, which would “help put AMC in a more sustainable position.” The analysts upgraded the company’s bonds to Buy from Hold on the news, and said the 2026 bonds, which still yield around 12% trading at par, could offer good value.

But longer-term, a debt overhang remains. AMC has $5.5 billion in debt maturing by the end of 2027, according to Bloomberg data.

Analysts at CreditSights argued Tuesday that “sizable equity issuance is the only real avenue for AMC to right-size its over-extended capital structure… Despite the improving outlook for theatrical attendance, the company’s most pressing need is to deleverage its balance sheet.”

To sell a “sizeable” number of additional shares after Thursday’s issuance, AMC needs authorization from stockholders. Earlier this year it sought the green light to sell an additional 500 million shares, but withdrew that proposal in late April. 

AMC said in a Tuesday filing that it would again seek approval to sell more shares at its shareholder meeting July 29, albeit “in a quantity significantly smaller than the previous request.” More detail may become available when the preliminary proxy materials are published Thursday, the same day the company’s new AMC Investor Connect platform goes live.

With bond prices near par, investors may be betting that the company’s share-sale efforts will be successful.

Corrections & Amplifications: AMC said in a securities filing Tuesday that it would seek approval for more share sales. An earlier version of this article cited the incorrect day.

Write to Alexandra Scaggs at [email protected]