Source: FT, Friday 5th Feb 2021
Having taken on $500m in senior debt during the pandemic from investors including Apollo Global, AMC Entertainment, the cinema operator, quickly found itself burning through $100m in cash per month with no-one going to movie theatres.
In order to buy itself time, AMC embarked on a complex refinancing program, pitting existing lenders including Apollo against firms wishing to participate in the rescue package, which included Silver Lake Partners. Lucky for Silver Lake, it was their proposal that prevailed in the AMC boardroom.
Lucky, because Silver Lake was already in a tough spot; in 2018, they had bought a $600m convertible bond from AMC. They believed the firm could prevail despite the headwinds from streaming providers and thought the 3% coupon on the debt-component would provide a floor.
The convertible however had one unattractive feature; it was unsecured. This put it behind any senior debt in the case of bankruptcy. And by June 2020, the company was in fact on the verge of bankruptcy – junk debt was trading at 30c on the dollar and the even the senior debt was trading in the 60s.
Silver Lake’s proposal entailed them putting in $100m at the senior level and the junior bondholders would swap $2bn of debt for $1.5bn at a higher interest rate and for a longer maturity. Most controversially, Silver Lake would have their $600m convertible bond leapfrog to the most senior creditor level. This meant they would now share in any cash that might be recovered should AMC’s assets have to be sold off in a bankruptcy scenario.
By November 2020, with the prospect of BioNTech/Pfizer’s COVID vaccine looming, prospects of an economic recovery started to rise. AMC shares shot up as they announced plans to sell shares to the public through a so-called “at-the-market” programme where it could simply place shares opportunistically during trading hours. To add to this, in late January 2021, shares in AMC surged as Reddit readers and day traders piled into the stock rising to close to $20 per share at one point. Silver Lake converted their bonds into equity at $13.51 and sold the 44m shares at a price of $16.05, netting the private equity firm a $113m profit.
The Equity Analyst 