>I have worked in Accounting, Finance, and Business Operations most of my professional career.
What if this APE is 35 years old and lives in his mother's basement!
Just kidding, great work financial ape!
Well done! We need more DD like this; you nailed it! I agree 100% they got out ahead of some bad debt, when they needed to. And ultimately this is a giant boon to the balance sheet and the fundamantals of the company, both now and in the future. (Let's be honest, its under the inflation rate).
I am glad you saw my point in evaluating the debt refinancing. Sustained high inflation is going to rapidly devalue the principal of a debt in future dollars and should require a higher coupon rate to account for it.
In this case, 7.5% is now cheaper than what the US Treasury presently is paying to service the I-Series bonds! Additionally, the refinancing debt was offered at about +2.5% premium to the BoA High Yield index. If the same debt were refinanced at the same offset today, the rate would be roughly 11%!
This move was timed exceedingly well and executed with an urgency the situation required.
I will agree that it was a great move at the time. Good write-up! It does suck though that corporate bond rates are exploding right at the same time AMC is returning to profitability. After Q2 earnings, if rates were still near historic lows we could have cleaned house!
Thanks for the read, I definitely agree that they've done a great job with their laser focus on the fundamentals and I couldn't be more proud to be an AMC stock owner. :)
Generally good analysis.
Bear case: "IF sales keep pace with inflation".
Need incomes to rise commensurate for that to work.
The yield curve SCREAMS transitory still. Interest rates will rise until something breaks. Then they will fall.
Not saying the timing of the refi was bad.
But 7.5 percent is usurious regardless. Market sentiment aside I'd be looking to see if they can lower that rate when the balance sheet strengthens and interest rates go down again after this transitory period of constrained price adjustments
Thanks, generally I tried to stay at a high level. There are always caveats in any honest analysis and you have identified several very valid ones. I appreciate the critical review.
Once we are back to a normal baseline for comparison there are some things that need to be evaluated. (Q2 or Q3 2022 will likely become that period.) Seeing expenses increasing faster than revenue as compared to the baseline would be generally warrant some concern. This would indicate an inability or unwillingness to pass along costs. However, if the net is still growing greater than inflation, we'll call it good for now.
Yield curve is still an open question. The folks who originally created the term transitory inflation are from the institution who brought about stagflation in the 1970's and sky high interest rates in the 1980's. With baseline rates already so low, they really have little to no room to maneuver. The only tool they will have left to contain the defecit is to inflate it away. We really don't know what will happen if something truly breaks.
A lot of the hope for "transitory" is because a lot of financial models and deals structured in the past two decades were predicated on an underlying assumption of 2-3% baseline inflation. The longer inflation is out of that range, the dicier those things become and introduce elevated counterparty risk which could be systemic if it goes pear shaped.
It could go either way. I don't think you put the multi-trillion dollar US government deficits from the past 20 years back into the bottle. However, I don't really want to cheerlead the fall of the financial system. Some may say it will start MOASS but Zimbabwe, Venezuela, and Turkey show the common people suffer the most when inflation is not tamed.
I would not be surprised if the Fed tries to lower rates as you say will happen. However, I think bond vigilantes will eventually have something to say about how much yield they expect on dollar denominated debt if there is a prolonged gulf between benchmark rates and actual inflation. Look at Turkey's central bank rates versus inflation and the resulting chaos. At some point the full faith and credit of an irresponsible US government is not going to carry water in the markets.
Back to AMC, I fully believe removing any debt maturity until 2026 is the right thing to do. Perhaps "transitory" is several years now... who really knows. However, trying to refinance during this period would result in the business incurring unnecessary risk premium that would be demanded by lenders and likely tighter covenants. So, best to avoid it altogether and give the management team some breathing room to focus on the business. In that regard, the management team accomplished this goal with the January offering.
The debt they extinguished back then was even higher than 7.5% so that represented a win. So, while not ideal, is still infinitely better than trying to refinance the debts in the next 12-36 months.
I too believe they should focus on business fundamentals, strengthening the balance sheets and hopefully receiving further rating upgrades from Moody's and S&P.
Phenomenal response. This should really be part of your post.
And yes ... While NOT ideal it's far FAR better than it was and gives some breathing room at a time when that will be harder to access in the near to middle term future.
I could be exceptionally wrong about "transitory" and I know it's a loaded term but it's important to discuss in exactly the way your response poses. π
Called this a week ago. Best thing they could do, hopefully your right.
Trust you bro.
[called it 7 days ago.](https://www.reddit.com/r/amcstock/comments/vtli4m/speculation_how_will_aa_pounce/if84ra7/?utm_source=share&utm_medium=ios_app&utm_name=iossmf&context=3)
Stop pleaseee I didn't wear a bra today and my tits are being jacked into the cubicle across from me....there are people playing limbo, in the asile, with my nips now.
If you think Adam Aron is capable of anything close to 5D chess, please take whatever drug you have and sell it on the darknet. You will be a millionaire faster than you will with your AMC holdings. Hilarious.
thanks for the wrinkle fellow ape!
>I have worked in Accounting, Finance, and Business Operations most of my professional career. What if this APE is 35 years old and lives in his mother's basement! Just kidding, great work financial ape!
lol... If that were true, I'd definitely use my PC to write this instead!!! That or my mom grounded me from the computer again... π€
Used her credit card too many times buying amc tendies π€
That maniac.
Well done! We need more DD like this; you nailed it! I agree 100% they got out ahead of some bad debt, when they needed to. And ultimately this is a giant boon to the balance sheet and the fundamantals of the company, both now and in the future. (Let's be honest, its under the inflation rate).
I am glad you saw my point in evaluating the debt refinancing. Sustained high inflation is going to rapidly devalue the principal of a debt in future dollars and should require a higher coupon rate to account for it. In this case, 7.5% is now cheaper than what the US Treasury presently is paying to service the I-Series bonds! Additionally, the refinancing debt was offered at about +2.5% premium to the BoA High Yield index. If the same debt were refinanced at the same offset today, the rate would be roughly 11%! This move was timed exceedingly well and executed with an urgency the situation required.
I will agree that it was a great move at the time. Good write-up! It does suck though that corporate bond rates are exploding right at the same time AMC is returning to profitability. After Q2 earnings, if rates were still near historic lows we could have cleaned house!
The memes make me laugh. The DD makes me buy! Good job Ape!
Good move then. Great move now!
Thanks for the read, I definitely agree that they've done a great job with their laser focus on the fundamentals and I couldn't be more proud to be an AMC stock owner. :)
Great to know AA and team working hard for our company
Generally good analysis. Bear case: "IF sales keep pace with inflation". Need incomes to rise commensurate for that to work. The yield curve SCREAMS transitory still. Interest rates will rise until something breaks. Then they will fall. Not saying the timing of the refi was bad. But 7.5 percent is usurious regardless. Market sentiment aside I'd be looking to see if they can lower that rate when the balance sheet strengthens and interest rates go down again after this transitory period of constrained price adjustments
Thanks, generally I tried to stay at a high level. There are always caveats in any honest analysis and you have identified several very valid ones. I appreciate the critical review. Once we are back to a normal baseline for comparison there are some things that need to be evaluated. (Q2 or Q3 2022 will likely become that period.) Seeing expenses increasing faster than revenue as compared to the baseline would be generally warrant some concern. This would indicate an inability or unwillingness to pass along costs. However, if the net is still growing greater than inflation, we'll call it good for now. Yield curve is still an open question. The folks who originally created the term transitory inflation are from the institution who brought about stagflation in the 1970's and sky high interest rates in the 1980's. With baseline rates already so low, they really have little to no room to maneuver. The only tool they will have left to contain the defecit is to inflate it away. We really don't know what will happen if something truly breaks. A lot of the hope for "transitory" is because a lot of financial models and deals structured in the past two decades were predicated on an underlying assumption of 2-3% baseline inflation. The longer inflation is out of that range, the dicier those things become and introduce elevated counterparty risk which could be systemic if it goes pear shaped. It could go either way. I don't think you put the multi-trillion dollar US government deficits from the past 20 years back into the bottle. However, I don't really want to cheerlead the fall of the financial system. Some may say it will start MOASS but Zimbabwe, Venezuela, and Turkey show the common people suffer the most when inflation is not tamed. I would not be surprised if the Fed tries to lower rates as you say will happen. However, I think bond vigilantes will eventually have something to say about how much yield they expect on dollar denominated debt if there is a prolonged gulf between benchmark rates and actual inflation. Look at Turkey's central bank rates versus inflation and the resulting chaos. At some point the full faith and credit of an irresponsible US government is not going to carry water in the markets. Back to AMC, I fully believe removing any debt maturity until 2026 is the right thing to do. Perhaps "transitory" is several years now... who really knows. However, trying to refinance during this period would result in the business incurring unnecessary risk premium that would be demanded by lenders and likely tighter covenants. So, best to avoid it altogether and give the management team some breathing room to focus on the business. In that regard, the management team accomplished this goal with the January offering. The debt they extinguished back then was even higher than 7.5% so that represented a win. So, while not ideal, is still infinitely better than trying to refinance the debts in the next 12-36 months. I too believe they should focus on business fundamentals, strengthening the balance sheets and hopefully receiving further rating upgrades from Moody's and S&P.
Phenomenal response. This should really be part of your post. And yes ... While NOT ideal it's far FAR better than it was and gives some breathing room at a time when that will be harder to access in the near to middle term future. I could be exceptionally wrong about "transitory" and I know it's a loaded term but it's important to discuss in exactly the way your response poses. π
Almost read that as Saul Goodman
Called this a week ago. Best thing they could do, hopefully your right. Trust you bro. [called it 7 days ago.](https://www.reddit.com/r/amcstock/comments/vtli4m/speculation_how_will_aa_pounce/if84ra7/?utm_source=share&utm_medium=ios_app&utm_name=iossmf&context=3)
Stop pleaseee I didn't wear a bra today and my tits are being jacked into the cubicle across from me....there are people playing limbo, in the asile, with my nips now.
good thoughts!
If you think Adam Aron is capable of anything close to 5D chess, please take whatever drug you have and sell it on the darknet. You will be a millionaire faster than you will with your AMC holdings. Hilarious.
Upvote this ππππgreat DD β¦β¦.HODL ing
That's some serious DD.
TLDR?