AMC Entertainment Holdings Inc. gained Tuesday, extending last week’s rally, after raising US$230.5 million with a stock sale to Mudrick Capital Management as the movie-theater operator pledged to “go on offense” with acquisitions.

The agreement with New York-based Mudrick is for 8.5 million shares of common stock at US$27.12 apiece, 3.8 per cent more than Friday’s closing price, AMC said Tuesday in a statement. The company, now an icon among retail traders, jumped as much as 23 per cent to US$32 at the open in New York trading. It was last 17.5 per cent higher to US$30.69 at 11:30 a.m.

With AMC shares now above Mudrick’s purchase price, the sale “sounds expensive” as current debt and equity indicate an enterprise value of more than US$16 billion, Michael Pachter of Wedbush Securities said in an email to Bloomberg.

If it returns to pre-COVID levels, AMC could optimistically reach around US$1 billion in earnings after adjustments -- which is above the US$929 million the company attained in 2018. Pachter said. “Mudrick must know something I don’t.”

AMC plans to use the cash proceeds from the sale for acquisitions of additional theater leases, as well as investments into AMC’s existing theaters, the company said in a statement. It is in discussions with multiple landlords of theaters formerly operated by Arclight Cinemas and Pacific Theatres, Chief Executive Officer Adam Aron said.

“We still don’t know exactly what” AMC is buying, “but whatever they acquire is likely to come with additional lease expense and will not be large enough to materially alter our view of the company’s cash flow and leverage profile,” S&P Global Ratings analyst Scott Zari said in response to questions from Bloomberg.

Free to trade

Mudrick’s stock purchase comes with the caveat that the shares be “freely-tradeable”, meaning the firm could sell the shares at any point or in any size it chooses. That would provide Mudrick with 8.5 million shares that could be sold as soon as today.

“I would be be surprised if Mudrick was buying at a premium now, expecting the shares to go up,” Matt Zloto co-head of U.S. high-yield research at CreditSights said in an interview. “It’s more likely the firm already sold or is selling the shares,” consistent with where equity has been trading, he said.

A representative for Mudrick didn’t immediately provide comment on the transaction.

The investment advisor firm has made big bets on AMC in the past, helping the movie theater chain as it pushed through the pandemic. In January, the firm entered into an agreement to buy US$100 million of new secured bonds in exchange for a commitment fee equal to about 8 million AMC shares. The agreement also called for Mudrick to exchange US$100 million of AMC bonds due 2026 for about 13.7 million shares.

Mudrick has benefitted from its ongoing relationship with AMC, working with management on previous deals which have been “a positive for both” AMC and the firm, a “win win,” Zloto said.

Raising capital

AMC’s bonds dropped after news of the new equity deal with Mudrick. The bonds due 2026 led the biggest losers in the U.S. high-yield market on Tuesday morning in New York, dropping nearly 3 cents on the dollar to as low as 96 cents before paring some of the losses to trade at 98.25, according to Trace bond trading data.

The latest deal with Mudrick may help the company reduce rent and other operating expenses if it’s able to enter into new lease agreements. AMC has been negotiating with its landlords to amend terms of certain leases and avoid a potential cash crunch through the height of the pandemic.

“With this agreement with Mudrick Capital, we have raised funds that will allow us to be aggressive in going after the most valuable theater assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities,” Aron said in the statement.

This sale is the latest of several equity financings conducted by AMC during its meteoric rise this year. It follows the completion of an at-the-market offering in May and a bankruptcy-avoiding financing in January. Tuesday’s deal represents just 1.7 per cent of AMC’s public float as of May 13, according to data compiled by Bloomberg.