AMC Entertainment Holdings is set to convert its preferred equity units to common stock, a move that traders have been anticipating all week. The move comes after the movie theater chain introduced its AMC preferred units, or APEs, last year in an effort to raise funds and pay off debts. This conversion will allow the company to issue more shares in the future. In addition, AMC will issue common stock as part of a litigation settlement payment between the company and certain shareholders. Once the conversion and settlement payment are complete, AMC will have the authorization to issue up to 550 million additional shares without further shareholder approval.
The anticipation of the conversion has led to some concern among investors, as they worry about their holdings being diluted when AMC issues more stock to be sold. However, CEO Adam Aron has reassured traders that dilution is not a mistake and that raising money was necessary for the company. AMC has successfully raised cash through the sale of APE units in the past, and without the funds raised, the company’s financial situation would have been dire. The conversion and settlement payment offer an opportunity for AMC to repay some or all of its debt while its shares are still trading at a premium.
In premarket trading, AMC shares were up 1.2% to $14.53 after closing 26.4% lower the previous day. The conversion and settlement payment are expected to have a significant impact on the company’s shareholder structure and will provide AMC with the ability to issue additional shares without further approval. Overall, this move is seen as a strategic decision to strengthen AMC’s financial position and address its debt concerns while taking advantage of the current premium trading levels.