CEO Adam Aron said Citi, Goldman Sachs, and Credit Suisse have extended AMC’s covenant waiver to March 31st of 2024.
“This is a reflection of AMC’s recovery being well under way… a vote of confidence in AMC by our banks that we much welcome. Thank you Citi, Goldman, and Credit Suisse”, said AMC Entertainment (NYSE:AMC) CEO Adam Aron in January of 2023.
So, what exactly is a covenant waiver extension and what does this mean for AMC Entertainment?
What is a Covenant Waiver?
A covenant waiver is when a lender temporarily forgives a borrower’s breach of a loan covenant.
In AMC’s case, the lenders are Citi, Goldman Sachs, and Credit Suisse.
Debt covenants are restrictions that lenders (creditors, debt holders, investors) put on lending agreements to limit the actions of the borrower (debtor), AMC Entertainment.
In other words, debt covenants are agreements between a company (AMC) and its lenders (Citi, Goldman, Credit Suisse) that the company will operate within certain rules set by the lenders.
Should a borrower violate a covenant, such as not maintaining a certain interest coverage ratio or engaging in unpermitted business activities, it may constitute a loan default, per The Balance.
Financial Covenants Explained
Covenant requirements are conditions the borrower must regularly meet throughout the term to demonstrate their creditworthiness to the lender.
Lenders frequently use certain financial tests that serve as indicators of the borrower’s repayment ability.
Failure to meet these tests violates the covenant and constitutes loan default.
In AMC Entertainment’s case, lenders have waived, or forgiven AMC’s breach of contract, per their loan covenant and extended it to March 31st 2024.
What Does This Mean for AMC Entertainment?
For AMC Entertainment, a covenant waiver will allow the business to run operations under its debt contracts with Citi, Goldman Sachs, and Credit Suisse until 2024.
If the company fails to meet its debt obligations, or financial covenant requirements, then the loans are subject to default.
This puts AMC Entertainment in a tricky position in terms of what they can and cannot do or say.
Which also explains why the CEO cannot raise awareness of the manipulative shorting of the company stock.
It’s very likely that speaking out on such topics may violate these covenant agreements.
Some retail investors have scrutinized Adam Aron for not speaking out on naked shorts like other CEO’s are doing today.
But this news may provide shareholders with more perspective on why that is.
Is AMC Entertainment Being Held Hostage by Lenders?
Citigroup currently holds call options representing 0 of underlying shares valued at $0 USD and put options representing 55,000 of underlying shares valued at $383,000 USD.
Source: Fintel.
The bank has been selling shares while playing put options in order to profit from the drops they’re triggering in the market.
On November 7th, 2022, Citigroup dropped AMC’s price target from $3.13 per share to $1.20 per share and used the media to promote the price target.
Just a month prior to Citi’s price hit, Credit Suisse said in October AMC shares are worth less than $1.
The banks are making their money which means it’s going to be up to the company and shareholders to prove the Wall Street short thesis wrong.
But I’m interested in hearing your thoughts.
Leave a comment down below.
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