AMC Preferred Stock Risks and Benefits

AMC preferred stock has no voting rights, which means that as a preferred stockholder, you won't have a say in the company's decision-making process.

One of the benefits of AMC preferred stock is that it typically offers a higher dividend yield compared to common stock.

AMC's common shares plummeted by 42% on Monday, ending the day at $10.46. This significant drop was directly related to the introduction of their preferred shares.

The stock dividend that delivered the preferred shares to investors acted as a stock split, which AMC had warned would cause their common shares to drop. This warning was not unfounded, as the preferred shares ended trading at $6, a price that reflected concerns about AMC's future.

AMC attempted to boost the popularity of the preferred shares with investors by listing them in New York under the ticker 'APE', a nod to meme stock enthusiasts.

AMC could sell common shares, but it requires shareholder approval to do so.

The company did not need to seek shareholder approval for the preferred share issue because of an authorization granted to its board by its former owner, China's Dalian Wanda Group, when it listed in 2013.

In July 2021, AMC retracted a proposal for shareholders to approve the issuance of more common shares after it raised $1.8 billion by capitalizing on the meme stock frenzy.

CEO Adam Aron cited investor opposition to more common stock sales, which is why AMC has not sought shareholder approval for a sale since.

AMC's common shares took a huge hit after the preferred shares started trading, plummeting 42% to $10.46 on Monday.

The fall was more than the $6 that the preferred shares ended trading at, reflecting investors' concerns about AMC's future in the wake of Cineworld Group Plc's warning of a possible bankruptcy.

AMC tried to boost the popularity of the preferred shares by listing them in New York under the ticker 'APE', a nod to meme stock enthusiasts.

However, investors didn't seem to care about the gimmicks, and instead, they flocked to the preferred shares.

Issuing new shares can dilute the value of existing shareholders' investments, as seen in AMC's previous efforts to raise more common stock. This was rejected by shareholders due to concerns about dilution.

AMC's capital structure has been significantly altered since the pandemic, with a 400% increase in shares outstanding and a $5.4bn debt load. This makes it challenging for the company to manage its finances effectively.

The creation of a Preferred Equity Units (APE) class of stock provides AMC with the ability to issue new shares for investment purposes. However, this raises questions about whether future share issuances will prove accretive or dilutive.

Existing shareholders of AMC have concerns about dilution due to the issuance of new shares, which would water down their claim on the company's assets and potential profits.

AMC's capital structure has seen a 400% increase in shares outstanding since the start of the pandemic, along with its sizable $5.4 billion debt load.

Aron has argued that dilution can be good if it helps AMC raise needed cash and is wisely handled.

MKM Partners analyst Eric Handler noted that the creation of a Preferred Equity Units (APE) class of stock provides AMC with dry powder to issue new shares for investment purposes.

The extra cash could be used to fund acquisitions of other theaters, pay down debt, or even push into unrelated businesses, like AMC's 2021 purchase of a large stake in a gold mining company.

If AMC were to sell its remaining 483.2 million preferred shares at the listed preferred shares' Monday closing price of $6, it would raise $2.9 billion, further increasing the number of shares outstanding.

AMC has issued 516.8 million preferred shares this month, leaving it with 483.2 million it may sell in the near term.

In a potential bankruptcy, APE unit shareholders would get paid before common stock shareholders because they're above common stock but below debt in AMC's capital structure.

AMEC's uncertain future could cause the share prices of APE units and AMC stock to diverge.

The APE units are considered preferred equity, which means they have different rights in a bankruptcy proceeding than regular common stock.

This discrepancy could lead to the APE shares selling at a premium over AMC common shares, as investors prioritize the potential for priority payments in a bankruptcy.

The AMC preferred stock has started trading, with shares listed under the NYSE ticker "APE" since August 22. This new class of shares has the same voting rights as the existing common shares.

The dividend payment of about 517 million APE units is expected to take place later this month. This is a one-time "dividend" paid to investors in the form of preferred shares.

The preferred shares were issued as a creative solution to increase the share count and raise funds after investors rejected proposals to issue more shares last year. AMC's CEO Adam Aron acknowledged the support of retail investors who helped save the company from bankruptcy in early 2021.

The dividend payment will give each common stockholder one AMC Preferred Unit for each common share issued by the company in their possession. This means that investors will receive a direct benefit from the company's decision to issue preferred shares.

Here's a quick rundown of the key details: