AMC Lenders Allege Default With New Debt Deal on the Horizon

A group of AMC Entertainment Holdings Inc. lenders opposing the company’s planned debt overhaul claims the theater chain violated terms of its credit agreement by failing to provide adequate information about the deal.

The lenders, representing a majority of the company’s $2 billion term loan, sent AMC a notice of default. They said in a July 12 letter seen by Bloomberg that AMC’s response to questions about the permissibility of a planned debt swap and agreement with private equity firm Silver Lake was “completely inadequate.”

AMC has provided additional information since the letter was sent, but the group still doesn’t view the disclosures as sufficient and is operating as if the company is still in default, according to people familiar with the matter who asked not to be identified discussing private transactions.

The letter called Silver Lake a company insider and argued the theater chain’s “blatant refusal” to provide more information means “there is no reasonable basis” to conclude the exchange is allowed.

Silver Lake has a seat on AMC’s board, but recused itself from discussions related to the debt transaction, one of the people said. Supporters of the existing deal believe the financing is permissible under AMC’s credit documents, the person added.

Lawyers at Gibson Dunn & Crutcher and bankers at Greenhill & Co. signed the letter on behalf of a group that includes Apollo Global Management Inc., Ares Management Corp. and Eaton Vance Corp., according to the people.

Representatives for AMC, Gibson Dunn and Greenhill didn’t respond to requests for comment. A spokesman for Silver Lake declined to comment.

Shares of AMC fell around 0.7% to $4.12 at 9:51 a.m. in New York. The company’s term loan due 2026 trades at about 68.75 cents on the dollar, according to data compiled by Bloomberg.

Swap Deal

AMC had been working to tame its debt load and boost liquidity as the Covid-19 pandemic forced its theaters shut. The company struck a deal with a majority of bondholders earlier this month that would give it fresh cash and more time to repay its debts.

As part of the plans, Silver Lake, which owns a majority of the company’s convertible bonds, agreed to buy $100 million of new first-lien notes at around 90% of face value. The private equity firm is getting advice from Moelis & Co., the people said.

A representative for Moelis didn’t immediately return messages seeking comment.

AMC’s existing subordinated noteholders would swap their debt for new second-lien secured notes due 2026, and have the option to purchase $200 million of new 10.5% first-lien notes due the same year. Bondholders have until Friday to turn in their securities at the most favorable terms.

The opposing lenders are working with the company and subordinated bondholders on alternative offers that would hand Silver Lake 1.5-lien debt instead of first-lien notes. The proposal would hand AMC as much as $500 million of new liquidity, with $300 million coming from the lender group. Earlier talks had centered on first-lien lenders putting in around $200 million, Bloomberg previously reported.

The lenders also asked Citigroup Inc. to resign as administrative agent on AMC’s loan, according to a separate letter seen by Bloomberg. Citi remains on the loan but intends to step down when a new agent is appointed, one of the people said.

A representative for Citi declined to comment.

Credit Suisse Asset Management and Davidson Kempner Capital Management are also in the opposing lender group, which says the planned transaction violates AMC’s fiduciary duty, dilutes the value of their holdings and deprives the theater chain of additional liquidity, the people said.

The company’s planned deal would hand AMC $300 million in fresh funds and cut its debt load by at least $460 million, according to a statement last week.

©2020 Bloomberg L.P.

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