AMC Entertainment Bondholder Deal Will Keep Chain Going Into Spring, Even In Worst-Case Scenario

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UPDATED with details of restructuring: AMC Entertainment on Friday announced a sweeping restructuring that will bring in $300 million in fresh coin, reduce debt by as much as $630 million and lower cash interest expense by up to $200 million.

The debt restructuring agreement, anticipated by Deadline on Thursday, will keep the chain running through spring even in a worst-case scenario of all theaters being shuttered, a person familiar with the situation said, although the company is currently planning to reopen them July 30.

In an SEC filing, AMC said the restructuring will “prove highly beneficial to the company and its shareholders” as it navigates the COVID-19 crisis.

Theatres have been shuttered since March and AMC has been working with its bondholders to restructure its debt, which was high and put the chain in a tough corner as revenue dried up.

Corralling bondholders is notoriously complicated and an initial offer to subordinated debt holders to exchange their notes at a discount was postponed several times as AMC hashed out the deal with as many as 20 different institutions and fielded opposition from a group of first-lien bondholders.

The latest exchange offer announced today was preapproved by more than 73% of notes outstanding. Subordinated debtholders who opt to exchange will be getting 72.5 cents on the dollar but swapping into a slightly higher class of notes. The remaining subordinated bondholders have until the new deadline of July 24 to sign on.

Approval by 73% of them (well above the 51% required to move forward) already reduces outstanding debt by $460 million, according to the person familiar with the situation. At 100% approval, that would become $630 million.

Subordinated debt is the last in line to recoup if a company files for bankruptcy. First lien is the highest.

Once the exchange is completed, the deal calls for subordinated debtholders who participated to purchase $200 million in new first lien notes, which will inject badly needed, fresh cash.

Separately, AMC bondholder Silver Lake Partners has agreed to provide $100 million in senior loans, according to the person familiar with the situation. So that’s a total cash injection of $300 million.

Silver Lake, which acquired $600 million in AMC debt in 2018, also agreed to extend repayment of that from 2024 to 2026. A person close to the situation said that’s particularly beneficial to AMC because the interest rate is a low 2.95%.

Further extending AMC’s financial runway, subordinated noteholders have agreed to forgo cash interest until 2026, which will result in $25 million-$40 million of cash interest savings in the next four to six quarters, the person said.

That’s all very jargony, but there was some real drama as first lien bondholders including Apollo Global Management, Ares Management, Davidson Kempner Capital Management and Eaton Vance protested one element of the agreement that elevated Silver Lake’s bonds to first lien status alongside theirs.

It’s related to the contractual obligation that was part of Silver Lake’s original AMC bond purchase and it ends up dilutes the positions of other first lien holders. They had offered a $200 million cash injection — which would have worked out to $400 million in cash — as an alternative to avoid that scenario and a person close to them indicated they felt Silver Lake was advantaged because it has a board seat.

Silver Lake, however, had recused itself as AMC negotiated with all groups of bondholders privately, and also has the best interest of the company at heart another person familiar with the situation said.

Possibly as a result of the friction, the restructuring announced today includes a so-called “fiduciary out.” That means if the company receives a more financially advantageous offer during the three-week period until the exchange deal closes it is allowed to consider it.

AMC shares have been gaining this week on anticipation of a deal with bondholders. Shares ended slighly higher Friday but dipped in late trading, down 1.3% to $4.54, after the announcement.

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