Earlier this month, it was announced that Vice Chancellor Morgan Zurn had ruled to block the conversion of APE Preferred Equity Units (NYSE:APE) into AMC Entertainment (NYSE:AMC) and a settlement worth approximately $129 million. The settlement was rejected because it would also reward preferred shareholders, who were not represented in the lawsuit.
Following the decision, an objector requested clarification and a continuance of the stay of the status quo order, which originally prevented AMC from the conversion, a reverse stock split and increasing authorized shares. This goes directly against the will of AMC CEO Adam Aron, who recently penned a letter highlighting the importance of raising equity. Aron warned that AMC runs the risk of running out of cash by 2024 or 2025 if it is unable to raise equity capital. AMC has argued that the objector “bears the burden of demonstrating that a stay is warranted.”
AMC Stock: Adam Aron Asks for APE Court Decision in Early August
Aron has explicitly mentioned AMC’s tight schedule, which means that AMC would like to hear a decision on the validity of the status quo order sooner than later. Kevin Gallagher, the company’s attorney, explained in a court filing dated July 26:
“Given the fundamentals of the industry, AMC’s current financial situation, and the general pattern of late-summer capital markets activity, a ruling in the late part of July or early August would create the maximum chance of AMC being able to raise equity capital through a capital markets financing in the near term.”
Today is July 27, which means that we are already in the “late part of July.” As a result, it may be unlikely that the court will make a decision by the end of the month. Gallagher goes on to explain that AMC had a whopping $11.4 billion in liabilities and burned through $189.9 million of cash for operating activities during the first quarter of 2023. As a result, AMC’s “current cash burn rates are simply not sustainable.”
Gallagher adds that AMC is a leveraged entity, which itself has forecast periods of negative cash flow in the quarters to come. In addition, August has historically been a slow month for the box office industry. That makes raising equity even more critical.
On the date of publication, Eddie Pan did not hold (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.
