just got a credit rating upgrade – and all because of meme madness.
Analysts at S&P Global Ratings say the company is less likely to default after using the meme stock rally to raise cash in the stock markets.
The company’s debt is still classified within the most speculative level of bonds in addition to the companies that are by or almost in default. But S&P Ratings upgraded its rating by two notches to CCC +, leaving it seven levels below investment class and reflecting a lower probability of default.
It’s primarily the result of AMC’s ability to raise cash by selling shares for a rally run by traders who organize on bulletin boards like Reddit. So far this year, the company has raised more than 1.8 billion. Dollars in share issue according to S&P.
“As a result, we believe that AMC, which had a monthly cash burn of $ 120 million in the first quarter of 2021, has sufficient liquidity to maintain its operations while theater participation improves,” analysts Scott Zari and Rose Oberman wrote in a Thursday conference.
In other words, the company is less likely to seek a deal with lenders to restructure its “heavy debt burden of more than $ 5 billion dollars” over the next 6 to 12 months, S&P said. Of course, the company’s bonds have mostly already priced this expectation. The bonds yield 9.2% according to Bloomberg price data, down from more than 20% in February.
The extra cash and the brighter outlook for box office attendance could also help the company refinance expensive debt raised during the pandemic at lower cost, analysts said.
“If the company uses the majority of this revenue to reduce debt and refinance the expensive debt raised during the pandemic, it will significantly reduce its interest burden, cash burn and leverage,” the analysts wrote. “This, combined with our expectation that theater participation is likely to improve significantly in the second half of 2021, paves the way for a sustainable capital structure.”
Write to Alexandra Scaggs at firstname.lastname@example.org