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- AMC stock slid 35% on Monday after the company received approval to convert APE units to common stock.
- Investors have been fearing that scenario for months, as it could dilute value for existing shareholders.
- APE shares, meanwhile, jumped 19% on Monday.
AMC stock plummeted on Monday, as investors worry about the company's plans to convert preferred shares into common stock after a judge paved the way for the theater chain's proposal to raise more money to pay down debt.
Investors in the meme stock have feared that scenario for months, after AMC proposed a settlement in a recent shareholder lawsuit that could allow the firm to convert preferred stock units — which trade at a big discount to AMC shares — to common stock in order to raise cash.
The settlement received approval on Friday, sparking a steep-sell off in the common stock on Monday. AMC shares slid 35% at the open to $3.45 a share.
Meanwhile, APE shares, the company's preferred stock unit, rose 12% in early morning trading to $1.99 a share.
In sum, AMC could convert as much as $129 million into common stock and conduct a reverse stock split, the firm said in an SEC filing earlier this year. That's intended to help the firm raise cash to pay down debt, of which it paid off $200 million in the first quarter and just $42 million in the second quarter.
The company managed to raise $155 million by converting APE units in the first quarter, and $34 million in the second quarter.
"There are real and potentially severe liquidity hurdles on the horizon that we will need to overcome. Even so, at this point, we are accustomed to and skilled in rising to meet any and all challenges and are very much committed to our relentless efforts to ensure that AMC is best positioned for sustained long-term success," AMC CEO Adam Aron said in a statement last week.
The stock has struggled since the heyday of the meme stock boom of 2021, with common shares down 94% from their all-time-high of $59.26.
Still, AMC has done well this year, with earnings beating Wall Street's estimates over the first and second quarter. The company's total revenue grew 21% over the first quarter to $954 million, and shot up another 16% in the second quarter to $1.34 billion. Common shares are up 34% from levels at the start of the year.