Trading Junk Bonds: An AMC Case Study

Disclosure: The author owns securities in the referenced company. This is not financial advice or a recommendation, and not a substitute for due diligence. 

Originally tweeted: May 15, 2024

Follow-up on my AMC bonds post from 5/13 to educate those that follow my feed (I am a bondholder).

This should help demonstrate how HY bonds trade across different vintages (i.e. years due) when there is a specific event risk (e.g. 2025 vs 2027).

The event is the pay down of the 2026 2L's (see previous post on debt designations).

I did end up buying the 2027s which are far riskier than the 2025s in the early AM before AMC started to participate in the meme run. 

At this point, the risk is massively out of the bonds and it's all about the stock. 

Image 1 - This is the Trade history for the AMC 6.125% 2027 subordinated debt. You can see that it had over a 30% yield on 5/13. It traded straight up as soon as the 8-K was posted. These bonds are still rated CCC-.

Image 2 - This comes from the Fed Website and shows the OAS (Option Adjusted Spread) credit spread for CCC bonds. If you add this to the risk-free rate, you can see that composite CCC Bonds yield a bit over 15% annualized. This data is an average of corporate bond yields after removing the risk-free rate at each time point.

The OAS spread metric is going to be biased toward CCC+ only b/c CCC- usually has extreme bankruptcy risk (and therefore there's not as much of it). This incidentally is also why I've been so annoyed.

You can see the YTM for the AMC 2027s is far higher than 15%, which was why I was pondering its silliness in my post on May 13th. 

That said, the 2027s still have risk that the 2026s do NOT get renegotiated.  Still, given AMC's cash position it shouldn't be an issue barring another strike in the industry. So, if 2025 is actually good, then AMC bankruptcy risk is off the table for multiple years (not just 1 year) and the 2027s should be fine.

Image 3 - This is the trade history for the 2025s.

No matter what, the 2025s (due in June of next year) should be fine. There is only 1 year and 1 month left, so these are now more or less trading in line with CCC (the 15% + 1 mo). You can see the highest print was at 15.637% on 5/14.

Also, note that AMC had $600M at Quarter End and less than $100M due 2025. Yet, the hater shills were trading this debt at 88c on the dollar, meaning a YTM of over 20% vs the implied CCC yield, indicating trading in AMC bonds is F'd up too.

Hope that helps you guys that are following to learn.

Again, DO NOT FOLLOW ME into this trade if you DO NOT understand it. THIS IS NOT INVESTMENT ADVICE.

Truly, I am posting for EDUCATION PURPOSES ONLY!

Also, for those of you who hate me b/c I own the bonds, note I also own the stock. 🙂 

Link to tweet: https://twitter.com/marketswithmay/status/1790801770194559313