Joe Rennison, Alice Hancock and Robert Smith in London, and Sujeet Indap in New York
The Reddit army of day traders has handed gains worth hundreds of millions of dollars to two big-name creditors of struggling cinema operator AMC Entertainment, after the investment firms swapped risky debt for equity that has skyrocketed in value.
The stock price of AMC, the world’s largest cinema operator, soared 300 per cent to $19.90 on Wednesday, as individual investors drove up the price of the stock. That exceeded the trigger price on $600m of convertible bonds held by Silver Lake Group. The firm has now swapped the debt — which paid interest of 2.95 per cent — into AMC stock at a price of $13.51, according to regulatory filings.
At Wednesday’s closing value, Silver Lake’s stock holding was already worth more than $880m. “Silver Lake has made the trade of a lifetime thanks to the basement bandits,” said one credit hedge fund manager.
Earlier this month, Mudrick Capital Management also swapped AMC debt for equity. The investment firm exchanged $100m in debt for close to 14m shares, which are now worth $273m.
In addition, Mudrick lent the cinema operator a further $100m at an annual interest rate of 15 per cent. As a fee for committing to the deal in December, it also received another 8m shares, which are now worth $164m. The investor was already one of AMC’s largest shareholders.
Frenzied trading in AMC, GameStop and other shares over recent days has been sparked by individual investors corralling together through social media networks such as Reddit. The windfall profits for AMC’s backers stand in contrast to some of the anti-establishment messaging from the day traders, who have forced hedge funds to back away from their bets against struggling companies.
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