It is the kind of bailout that the most indebted companies in the United States can only dream of: a new injection of money that will not hurt the already depressed stock price or carry even more expensive debt on their balance sheets.
However, thanks to the army of day traders who use Reddit to publicize and make offers of underprivileged stocks and squeeze short sellers, companies like American Airlines Group Inc. and AMC Entertainment Holdings Inc. found itself at the receiving end of such a lifesaver.
Both took steps last week to sell hundreds of millions of dollars worth of shares and ensure the necessary liquidity. In addition to the companies themselves, there may be no greater winner in the huge stroke of luck than their creditors. A few weeks ago, many were looking at the possibility of significant losses, as the falls fueled by the pandemic made investors bet on the chances of default. Now, companies are suddenly in a position to raise new piles of cash to weather the storm and may even use the funds to start paying off debts.
“We certainly didn’t have a ‘surprise stock offering’ line in our AMC model,” said Bill Housey, senior portfolio manager at First Trust Advisers, which used to have AMC debts, but has totally sold its position in recent days. “Companies that otherwise faced real financial challenges are finding an unexpected source of capital.”
American Airlines declined to comment on the sale of its shares beyond the regulatory filing on Friday, while AMC did not respond to requests for comment.
It is no coincidence that some of the most troubled borrowers are now the ones that benefit most from retail-driven highs. Its huge debts, combined with the devastating impact that Covid-19 had on its ability to generate revenue, were among the reasons why its shares were so short sold.
American Airlines unveiled plans on Friday to sell up to $ 1.1 billion in shares through what is known as a marketplace program that allows companies to issue additional shares at market prices. The announcement came after his stock soared like 38% at its peak last week.
Just a few days earlier, AMC said this had raised more than $ 300 million through a similar program. Investment firm Silver Lake, one of the company’s main creditors, also took advantage of AMC’s drive to convert $ 600 million of bonds into shares, before selling the shares on the open market for a gain of more than $ 100 million.
The cinema operator, whose shares soared 278% last week, is considering selling additional shares, Bloomberg previously said. reported.
Read More: AMC’s sudden increase makes Silver Lake winners, Mudrick
Most companies that benefit from rising share prices should consider taking similar measures, especially if they face short-term debt maturities or experience liquidity problems, according to Lloyd Sprung, head of debt consultancy and restructuring at UBS Investment Bank.
“They can use the money to pay debts, selectively finance open-market debt repurchases, bids or targeted foreign exchange offers,” he said.
American Airlines, the largest indebted US operator, paid 11.75% in June to increase $ 2.5 billion through the bond market, and resorted to offers of shares and convertible notes to raise billions of dollars of additional liquidity.
AMC, for its part, secured a £ 400m ($ 547m) loan from its Odeon Cinemas unit earlier this month, which pays a 10.75% fee in the first year, before rising to 11 , 25%. The business is part of $ 917 million that the company has raised since mid-December, while trying to remain solvent until the vaccines bring viewers back.
After recovering in the past four days, American Airlines 5% unsecured notes due in June 2022 now earn less than 1,000 basis points more than similarly matched Treasury bills for the first time since March 2020 AMC’s 12% benchmark securities due in 2026, however, rose from about 22 cents at the end of the year to 74 cents on Friday, although they still yield more than 18%.
Traders are now eyeing other Reddit choices, like GameStop Corp., Express Inc., Bed Bath & Beyond Inc., and Naked Brand Group Ltd., for potential stock sales, after the shares increased further on Friday.
“It’s just random,” said Housey of the First Trust. “While the negotiations may have hurt those sold, in many names they have helped creditors.”
– With the help of Drew Singer, Brendan Case and Kelly Gilblom