AMCX - AMC Networks 2025 Bonds Now Yielding Over 16%

Summary

• AMC Networks 2025 maturing bond recently cratered in price compared to its peers.
• The company has been dealing with revenue headwinds, but operating profit is stable.
• The company is free cash flow positive and has ample liquidity to ride out the next few years.

AMC Networks ( AMCX ) is a cable, streaming, and production company that has been around since 1980. Recently, the company's bonds maturing in 2025 experienced a steep selloff. At 76 cents on the dollar, the company's 2025 bonds now yield over 16% to maturity. This is notably higher than the company's two other bond offerings and 900 basis points higher than the comparable BB rated corporate bond yields. I believe the 2025 maturing bonds represent a good opportunity for high yield investors.

AMC Networks' income statement shows that the company is facing revenue headwinds. In the first nine months of 2022, the company saw a drop in revenue of $140 million compared to the same period a year ago. Despite the revenue drop, AMC Networks was able to lower its operating expenses by $200 million ($167 million of that due to one time impairment/restructuring charges). Therefore, operating income increased by more than $50 million from the prior year to $478 million, more than 5 times higher than the company's interest expense and easily profitable.

AMC Networks' balance sheet reinforces the idea that the company has stability. Its assets comprised mostly cash, receivables, program rights, and intangibles grew from the end of 2021. Liabilities declined modestly due to a reduction in accounts payable and a slight drop in long-term debt. The result is an increase of more than $100 million in shareholder equity.

AMC Networks' cash flow statement shows similar operating cash flows from the same period a year ago, but for different reasons. In 2022, cash flow from operations was lifted by a higher net income combined with the positive effects of lower working capital (receivables and payables). After capital expenditures, AMC Networks had a slightly positive free cash flow, which was lower than a year ago. Despite the reduction, AMC Networks has still been able to make principal payments on its debt and distributions to its noncontrolling interests.

One concern facing AMC Networks is its debt maturities. The company is facing over $1.8 billion of its $2.8 billion in long term debt maturing by August of 2025. In a higher rate environment, with a BB credit rating, AMC Networks is facing higher interest expenses and the possibility of being unable to access new capital. Fortunately, the company has a $500 million revolving credit facility that is untapped, along with $790 million in cash. I believe that with greater than $1.2 billion in liquidity, AMC Networks should be able to renew its term loan and payoff its two debt maturities, if needed.

Overall, AMC Networks has faced its revenue headwinds with a responsible reduction in operating expenses and no need to incur new debt. While AMC Networks is going through a leadership transition, the company should be able to find a capable candidate to lead the organization. The company is also carrying adequate liquidity to meet its near term obligations, which makes the 2025 maturing debt so attractive at its 16% yield.

CUSIP: 00164VAE3

Price: $76.62

Coupon: 4.75%

Yield to Maturity: 16.205%

Maturity Date: 08/01/2025

Credit Rating (Moody's/S&P): Ba3/BB

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