Private Equity Firm Silver Lake Capitalizes on AMC Theatres Stock Surge

Empty Theater_AMC Broadway 4_Santa Monica - Getty - H 2020
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Silver Lake converts its $600 million bond into AMC equity, lightening the cinema giant's debt load while letting it take advantage of the market surge.

As the stock price of movie theater giant AMC Entertainment surged Wednesday, the private equity firm Silver Lake used the volatility to its advantage.

In 2018, Silver Lake, invested $600 million into AMC via a debt offering due in 2024. Last year amid the pandemic, AMC and Silver Lake renegotiated the deal to help the cinema giant stay afloat, while extending the debt maturity to 2026.

With AMC's stock surging to nearly $20 per share Wednesday, the firm elected to convert its $600 million bond into AMC stock at a conversion price of $13.51 per share, according to a securities filing Thursday morning. The move will lighten AMC's debt load by $600 million, but will also see the company issue 44,422,860 Class A shares to Silver Lake, giving it an instant gain of $284 million.

One credit hedge fund manager told the Financial Times that Silver Lake made "the trade of a lifetime thanks to the basement bandits."

The conversion instantly makes Silver Lake the largest shareholder outside of Wanda Group, which has control of the company through its Class B stock (Wanda agreed to forfeit 5,666,000 Class B shares under the terms of the Silver Lake deal).

Silver Lake may not be the only firm to take advantage. Last month, Mudrick Capital Management, which also holds debt in AMC, converted $100 million of AMC debt into common stock. While it isn't yet clear if the firm sold during the surge, it too would see earnings in the hundreds of millions.

On Thursday, AMC Entertainment, led by Adam Aron, opened at $16 per share, but as of writing had fallen below $9. That's still up substantially from the beginning of the month, when it was trading at $2. At the same time, the popular casual trading app Robinhood announced that it would temporarily stop users from buying shares in certain companies including AMC and GameStop, only letting them sell.