It’s the kind of bailout that the most indebted companies in the U.S. can only dream of: a new cash injection that won’t hurt their already depressed stock price or carry even more costly debts on the balance sheet.
However, thanks to the army of traders who use Reddit to promote and offer unfavorable actions and reduce short-term sellers, companies like American Airlines Group Inc. i AMC Entertainment Holdings Inc. has been found at the receiving end of this lifeline.
Both took steps over the past week to sell shares and hundreds of millions of dollars ensure the necessary liquidity. In addition to the companies themselves, there may not be a bigger winner of fortune than their creditors. A few weeks ago, many were looking at the possibility of significant losses, as the pandemic-fueled falls caused traders to bet on the odds of default. Now, companies are suddenly in a position to get new stacks of cash to weather the storm, and they could even use the funds to start paying off debt.
“We certainly didn’t have a row for a‘ surprise equity offer ’in our AMC model,” said Bill Housey, senior portfolio manager at First Trust Advisors, which used to own AMC debt, but completely exhausted its position in recent days. “Companies that on the other hand faced real financial challenges find an unexpected source of capital.”
American Airlines declined to comment on its sale of shares beyond Friday’s filing of a regulatory filing, while AMC did not respond to requests for comment.
It is no coincidence that some of the most problematic borrowers are the ones who benefit most from retail-oriented rallies. Its huge debt loads, combined with the devastating impact Covid-19 has had on its ability to generate revenue, were one of the reasons its shares fell so sharply.
American Airlines on Friday unveiled plans to sell up to $ 1.1 billion in shares through what is known as the market program, which allows companies to issue additional shares at market prices. The announcement came after his shares rose so much up 38% over the past week.
Just a couple of days before, AMC said so had raised more than $ 300 million through a similar program. Investment firm Silver Lake, one of the company’s major creditors, also seized the AMC increase to convert $ 600 million in equity bonds, before selling the shares on the open market to earn more of $ 100 million.
The film operator, whose shares rose 278% last week, is considering selling additional shares, previously Bloomberg reported.
Read more: AMC a sudden wave makes Silver Lake winners, Mudrick
Most companies that benefit from rising stock prices should consider taking similar measures, especially if they face short-term debt maturities or have liquidity problems, according to Lloyd Sprung, head of advice and debt restructuring of the UBS Investment Bank.
“They can use the cash to pay off debt, selectively finance open market debt repurchases, tenders or specific foreign exchange offers,” he said.
American Airlines, the largest US most indebted airline, paid 11.75% in June to increase it $ 2.5 billion through the bond market and resorted to equity and convertible banknotes to raise billions of dollars of additional liquidity.
AMC, meanwhile, earlier this month obtained a £ 400m ($ 547m) loan linked to its Odeon Cinemas unit that pays a rate of 10.75% the first year before climb up to 11.25%. The agreement is part of the The company has raised $ 917 million since mid-December as it tries to maintain solvency until vaccines recover cinephiles.
After meeting the last four days, American Airlines ’5% unsecured tickets that expire in June 2022 now produce less than 1,000 basis points more than Treasuries with a similar maturity for the first time since March 2020. AMC’s 12% benchmark bonds due in 2026, meanwhile, have risen from about 22 cents at the end of the year to 74 cents on Friday, although they continue to yield more than 18 cents. %.
Now marketers keep their eyes set on other Reddit selections, such as GameStop Corp., Express Inc., Bed Bath & Beyond Inc., i Naked Brand Group Ltd., for possible stock sales after Friday, the shares were expanded.
“It’s so fortuitous,” First Trust’s Housey said. “While businesses may have hurt the shorts, in many names they helped creditors.”
– With the assistance of Drew Singer, Brendan Case and Kelly Gilblom