L'Occitane, CiCi's Pizza & More
⚡️Update: AMC Entertainment Inc. ($AMC) ⚡️
Ok, fiiiiiiiine. We’ll talk about AMC Entertainment Inc. ($AMC). Sure, sure, GameStop Inc. ($GME) is also interesting but, seriously? Is there really anything else to say about it at this point? Maybe one day GameStop and its 5,000 retail locations will come as close to bankruptcy as AMC apparently did, but that day appears to be quite far afield right now. As far as we’re aware, unlike AMC, GME didn’t have bankruptcy professionals churning first day pleadings in preparation for a juicy chapter 11 bankruptcy filing.
Those professionals are obviously “pencils down.”
On Monday (1/25/21), AMC announced via 8-k filing that it had raised $917mm in new capital since December 14, 2020: $506mm from at-the-market new equity issuances and $411mm via a new term loan led by Oaktree Capital Management and Centerbridge Partners. This total subsumes the previously announced deal with Mudrick Capital Management, which recently took time out of its busy schedule losing money on the Hycroft Mining Holding Corporation ($HYMC) deal* to provide AMC with $100mm in new cash. In exchange for that fresh capital, Mudrick received $100mm 15%/17% Cash/PIK first lien notes, and also converted $100M of its existing second lien notes into common stock. We’ll come back to the conversion nugget in a second. Before we do, we’d be remiss if we didn’t recap the sheer insane level of activity that, even prior to this week, AMC had been up to in order to survive the pandemic.
By our calculations, as of the Monday announcement, AMC had raised an astounding $1.9b of capital since April through a series of debt and equity issuances, amendments to existing debt, exchange offers, and asset sales. To recap the roller coaster: AMC drew the entirety of approximately $325mm on its revolving credit facilities in Q120, followed by an issuance of $500mm ‘25 first lien notes in April. In July, the company completed an exchange swapping $2.0B of senior subordinated debt for $1.46b second lien PIK toggle notes, reducing its debt by $555mm. Concurrently with (and, in order to receive consent for) the July exchange, the company amended its $600mm unsecured convertible notes with SilverLake Partners to (i) extend the maturity from 2024 through 2026 and (ii) grant the noteholders first-lien priority. Additionally, AMC issued $300mm ‘26 first lien notes, $100mm of which was placed with SilverLake. In addition, during Q420, the company raised approximately $263mm from at-the-money equity offerings. This is not normal, folks. This is an astounding level of “liability management.”
Given all of that, with Monday’s announcement CEO Adam Aron was triumphant; he noted that the latest fundraise “means that any talk of an imminent bankruptcy for AMC is completely off the table.” Note the operative word, “imminent.” After all, buried lower in the announcement was the (significant) caveat that absent (a) additional landlord concessions, (b) increased attendance, and (c) continued equity issuances, the company would run out of liquidity in July 2021. Yes, a mere five months from now.
About those landlords: by the end of June 2020, the company had reached agreements for rent deferral and abatement on approximately 75% of its leases. But rent is expected to increase because those deferred obligations are about to come due. The company hasn’t made rent payments on a “substantial portion” of those leases and has received notices of default. It’s a lot less likely that landlords will be willing to make additional concessions after what transpired this week so the company has either a lot of negotiating or paying to do in coming weeks. The landlords must be loving Reddit right now. Chaos breeds strange bedfellows.
As for attendance, as of January 21, AMC had 438 of its 593 U.S. locations open, albeit at reduced capacity. Theaters in major markets including NYC and California remain closed. During Q420, attendance in U.S. was 92.3% down from same period last year, which suggests that about 4.8 million people went to the movies during the quarter. During the Q320 earnings call, CEO Adam Aron noted that theaters start generating cash flow at 25% capacity, assuming rent is paid. Aron dismissed the notion seat limitation will cripple the business, adding that the company sold 17% of its available seats in 2019. (In the US, with approximately 1.1M seats and 250K patrons during the year, AMC’s utilization was closer to 22%.) Astute readers will note, however, that these numbers aren’t necessarily reflective of the theatre business reality. Hot releases draw large crowds, while mid-day showings during the week are slower. It’s not obvious that AMC can distribute the demand throughout the week, so the capacity restrictions may continue to be a drag on performance. Specifically, the company estimated that, together with proceeds from continued at-the-market equity programs and additional landlord concessions, it would require the following attendance levels:
10% of Pre-COVID 2019 attendance during Q121
15% of Pre-COVID 2019 attendance during Q221
65% of Pre-COVID 2019 attendance during Q321
90% of Pre-COVID 2019 attendance during Q421
Of course, to drive attendance you need inventory and studios continue to push out release dates given the status of the pandemic and the emergence of new (scary) variants worldwide. According to RottenTomatoes, of 91 “Most Anticipated Movies” slated for 2021 release, at least 11 are expected to be released simultaneously on HBO Max. Sh*t, we watched the new Denzel feature on Friday night (PETITION Note: Meh. Super happy we didn’t spend the money to see it in the theater. Jared Leto is one solid creeper tho). And apparently people LOVED streaming WW84 from home if recent Nielsen numbers are any indication. To put an even finer point on this, the following movies, among others, have been pushed to 2022: Avatar 2, The Batman, Black Adam (Dwayne Johnson’s foray into the DC comics universe), Doctor Strange in the Multiverse of Madness, Dungeons & Dragons, Jurassic World: Dominion, Thor: Love and Thunder, and the untitled new Indiana Jones film. It’s a good thing that the equity markets are willing to fork over cash because the registers don’t look like they’ll be ringing much for AMC in 2021. Make no mistake about it: this thing will continue to leak cash like a sieve.
During the third quarter conference call, the company provided guidance for Q420 monthly cash burn of ~$120-125M, an increase of 5-10% from Q320, reflecting an increase in theatre reopening expenses. The January 25th announcement notes that the average monthly cash burn was, in fact, ~$124 for Q420. 😬
Alas, don’t sleep on that “continued equity issuances” portion of the above-noted caveat. AMC was opportunistic AF this week. Attendant to the January 25th announcement was the fact that the company had agreed to an additional Goldman-Sachs-and-B.-Riley-Securities-agented at-the-market equity offering that it could deploy at any time. And by “any time” it meant, like, in the next 48 hours following the announcement. Goldman and RILY dumped that equity into the market like bawses, completing the ATM on Wednesday. Per Reuters:
On Wednesday, AMC said it raised an additional $304.8 million by selling shares this week, cashing in on an unprecedented social media-driven rally powered by amateur traders taking on hedge funds that had shorted its shares.
And if only the company had waited it could’ve fetched far more — the stock price continued to go up even after the ATM issuance was complete.
And so just like that — ⚡️abracadabra⚡️ — the company bought itself another three months of runway … not including, of course, the added interest expense benefit of SilverLake’s equity conversion. Per Bloomberg’s Matt Levine:
Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!
How in G-d’s name do you explain all of this? Well, “F*ck the Establishment” seems to be the most popular narrative. Except pardon us for being awfully confused as to who, exactly, “The Establishment” is in this scenario. We mean, sure, hedge funds that engage in shorting stocks at 140% of the float, we guess. Why not? F*ck those hedge funds. F*ck Wall Street. F*ck the “Suits.” F*ck Melvin Capital. F*ck Andrew Left. F*ck Steven Cohen (and definitely F*ck the New York Mets). Let’s all jump on the F*ck Train! Why not? Some prominent folks have already hopped aboard. Like Chamath Palihapitiya (a man who led “Growth” at Facebook knowing what that meant, i.e., addictive UX and a complete disregard for privacy, but whatevs, he made a billion dollars so 🤷♀️and that was before he ran his fund into the ground screwing over employees and investors but 🤷♀️🤷♀️, he’s a GOD!!! 🖕), Anthony Pompliano (no bigger pumper for Bitcoin out there), the Winklevii (who had the audacity to go on CNBC and claim that they didn’t want to talk their book … while talking their book and wearing a Gemini t-shirt), and countless politicians who have absolutely no idea what they’re talking about but are, of course, talking anyway (😉AOC, holla at us). Some of the (hot) takes are precious:
Except none of this ⬆️ seems to be taking into account that while, sure, shorts like Melvin Capital and Citron Research got smoked by a bunch of RedBull-IV’d basement traders,** plenty of other Wall Street-y institutions are having what seems like heaps of fun getting in on the F*cking. We mean, we’re looking at Silver Lake Partners — a private equity firm WITH $72B UNDER MANAGEMENT — and, call us crazy, but they’re, like, a PRIVAT EQUITY FIRM. They seem to be right up there with those targeted by WSB. We’re sure they were thinking about the “little guy” 🙄 when they converted their debt into equity and systematically dumped their equity holdings (as the price ascended, of course) into the market while also ridding themselves of their $100mm 10.5% first lien notes, completely severing ties to AMC while the market drooled all over itself:
Note the average price per share! Reuters tallies the sale proceeds at $713mm. We would check that math and/or calculate the IRR but, frankly, we are afraid our tech will spontaneously combust and/or Johnny may throw himself out the window in a fit of disbelief, frustration and jealousy (with maybe a pinch of admiration). Suffice it to say, they did alright.
Earlier this month, Mudrick Capital Management also swapped AMC debt for equity. The investment firm exchanged $100m in debt for close to 14m shares, which are now worth $273m.
In addition, Mudrick lent the cinema operator a further $100m at an annual interest rate of 15 per cent. As a fee for committing to the deal in December, it also received another 8m shares, which are now worth $164m. The investor was already one of AMC’s largest shareholders. (emphasis added)
Hats off to Mudrick.***
What about the large institutions — cough, the “F*CKING ESTABLISHMENT” — who hold the debt? Well, see for yourself:
The entire cap stack popped this week. It ain’t just the landlords: creditors all across the capital structure are rejoicing. Hip hip hooray for Reddit!
Annnnd who are the top holders of AMC stock? Well, aside from Mudrick, there’s BlackRock, Vanguard, Susquehanna, D.E. Shaw and others (sure sure we get that it’s mostly in street name but still). And let’s not forget Goldman Sachs (and B. Riley)! The “vampire squid” are agenting the ATMs for AMC so they’re definitely getting paid. Similarly, Ernst & Young LLP is the company’s accounting firm and KPMG LLP is the company’s auditor. Moreover, there’s Wall Street-y law firm, Weil Gotshal & Manges LLP, which helped paper the company’s various financings and provided an “Opinion” in support of the ATM. All for the very progressive rate of $1000+ an hour.
So spare us the “little guys” narrative.
Especially since we all know this movie is far from over.
And then imagine what happens once the “little guy” remembers how ridiculous it is to pay $9.50 for a fountain soda and $7.75 for what seems like a half empty box of Starburst. They may not be so keen on #SaveAMC then.
*Almost on cue, shortly after we wrote about Mudrick SPAC II and Hycroft Mining Holding Corp's lackluster performance, the stock shot up before gravity took hold and quickly brought the stock back down to earth. What caused the spike? Hard to say, exactly, though a short-lived blip in gold prices might have had something to do with it.
Whitebox Advisors LLC saw an opportunity. On December 18, 2020, the firm sold 28,075 shares at $8.65/share and then on December 22, 2020, it sold an additional 21,796 shares at $8.03/share. Clearly Whitebox doesn't share Mudrick's enthusiasm for the name: that's some opportunistic selling!
And it proved to prescient selling. The stock has done nothing since then and recently plummeted further, dipping below $7/share.
**Make no mistake, there were plenty of Wall Street-y funds on the other side of those trades too.
***Of course, Mudrick is encouraging — and AMC is considering — another at-the-market offering because, like, 🤷♀️capitalism!? Cynical and savage AF but, hey, when the beast is hungry you’d might as well feed it.
👃New Chapter 11 BK Filing - L'Occitane Inc.👃
Johnny recalls checking into a fancy hotel in Athens a few years ago, longing for a shower after a long flight. The place was stocked with L’Occitane bath and body product. He says he smelled like strong perfume and roses for two and a half weeks. Dogs attacked him. He nearly bathed himself in Clorox simply to do away with the smell. What is that relevant to? Absolutely nothing. Suffice it to say, however, that Johnny didn’t make a point of ever visiting one of L’Occitane Inc’s brick-and-mortar locations to pick up some soap.
Sadly, thanks to the pandemic, neither has anyone else. From the months of April through December 2020, consumer purchasing habits…
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🍕New Chapter 11 BK Filing - CiCi's Holdings Inc.🍕
Texas-based CiCi’s Holdings Inc. (along with eight affiliates, the “debtors”), owners, operators and franchisors of family-oriented unlimited pizza restaurants with 318 locations across 26 states,* filed for bankruptcy in the Northern District of Texas. The debtors relied HEAVILY on food bars and, well, you know…COVID-19. Don’t know about you but the last thing we want to do is hit the buffet these days…
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