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AMC Stock Soars as Hearing Risks Delaying APE Conversion

(Bloomberg) -- AMC Entertainment Holdings Inc. common stock surged 23% after a Delaware court said it will hold a preliminary injunction hearing on April 27, signaling a highly anticipated conversion between the shares and preferred units may take longer than expected.

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The movie-theater operator has been pushing for a shake-up to its share structure that would convert preferred shares — ticker APE — into AMC common stock this month. However, the April hearing is considered a headwind by risk arbitrage traders looking to capitalize on the spread because it creates uncertainty around the timing of the one-for-one swap.

AMC investors are slated to vote on a string of proposals on March 14 that would approve the conversion along with a 10-to-1 reverse stock split and the ability to sell more shares. The more than a month difference between the vote and the hearing drove the gap between the two assets to widen to $5.56 on Monday close, the largest since early December.

The common stock spiked to $7.61 while APE shares slipped to $2.05.

Read: AMC’s ‘Home Run’ Arbitrage Trade Is Collapsing With Vote on Tap

A risk surrounding a delayed conversion date will force arbitragers to hold their bets against the common stock for longer, eating into potential profits, after the cost to short AMC shares surged in recent weeks.

“The preliminary injunction hearing on April 27 extends the time that investors have to hold long APE/short AMC by at least a month and a half, given the horrifically high cost of borrow this is a painful outcome for arbitragers,” said Cabot Henderson, who focuses on merger arbitrage and special situations at JonesTrading.

As traders circulated the hearing date and the common stock soared, retail traders took to popular forums to discuss the move. AMC quickly became one of the most mentioned tickers on Reddit’s WallStreetBets and was the top trending symbol on chatroom Stocktwits.

While chatter spiked, amateur investors seemed to take advantage of the gains by dumping the shares, with AMC among the 10 most-sold assets on Fidelity’s platform.

--With assistance from Matt Turner.

(Updates prices, adds paragraph on retail traders)

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