Some folks might say it was a brilliant move for global movie-theater chain AMC Entertainment (NYSE:AMC) to create and issue shares of AMC Preferred Equity Units (NYSE:APE) stock.
However, others aren’t very pleased with AMC Entertainment’s large-scale printing of APE stock. There’s a great deal of controversy surrounding AMC Entertainment in 2023, so it’s a good idea to sit on the sidelines for now.
I’ve signaled caution and a wait-and-wait stance on APE before. I can understand why financial traders might envision a comeback story for AMC Entertainment.
Yet, as some investors complain about AMC Entertainment’s share issuance and other issues, there’s should be any rush to take a long position in 2023.
AMC Uses APE Stock to Reduce Debt Load
AMC Entertainment makes no bones about its use of preferred shares to raise fresh capital. In the company’s first-quarter 2023 report, AMC Entertainment highlighted the gross proceeds it raised and debt it “extinguished” though issuing APE stock.
It shouldn’t be too surprising if AMC Entertainment continues to print and sell its preferred shares.
After all, this would be a quick way to raise much-needed capital. Notably, the company’s position of cash and cash equivalents declined from $631.5 at the end of 2022 to $495.6 million as of March 31.
Along with cash-burn considerations, investors should bear in mind that AMC Entertainment still bears a considerable long-term debt load. Moreover, analysts on Wall Street aren’t generally highly optimistic about AMC Entertainment’s future prospects.
AMC Faces Controversy and Legal Issues
One AMC Entertainment shareholder is evidently so disgruntled that he’s actually suing the company in a Delaware court. Reuters reported that Rose Izzo, represented by attorney Theodore Kittila, complained that AMC Entertainment “stabbed” shareholders “in the back.”
AMC Entertainment allegedly seeks to pay off some of its $5.1 billion debt load through conversion of APE shares to AMC shares. Also, the company may choose to issue of new AMC and/or APE shares.
Of course, all of this share issuance would raise dilution concerns. The aforementioned legal action raises the question of whether AMC Entertainment allegedly “rigged” a shareholder vote that (per Reuters) “shifted the balance of ownership to holders of preferred stock.”
It’s all very messy and complicated. Whether the legal action results in a settlement or penalty is almost immaterial at this point.
The crux of the matter is that AMC Entertainment is apparently eager to raise money by printing and selling AMC/APE shares. That’s not necessarily a good thing if you’re a current shareholder.
Stay Tuned, But Don’t Buy APE Stock Now
AMC Entertainment’s cash burn and debt burden are still major concerns. Plus, it’s clear that AMC Entertainment will strenuously defend its ability to issue and sell AMC and/or APE shares.
Certainly, it seems that there are some dissatisfied AMC Entertainment investors. What’s happening in Delaware might set a precedent. In other words, there may be more legal actions against AMC Entertainment in the future.
The bottom line is that there are numerous current and potential problems surrounding APE stock. So, don’t be tempted to take a long position now. It’s wise to wait and watch for further developments with AMC Entertainment.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
