Hedge Fund Trolls AMC Rescue Loan Made Hundreds Of Millions in Gains - MalkamDior

Mudrick Capital Management LP, the hedge fund that provided a much-needed lifeline to AMC Entertainment Holdings Inc. in December, is sitting on hundreds of millions of dollars in gains following last week's rally in the price of AMC's shares.

The New York-based firm made $200 million in profit, mostly from its holdings in AMC debt, according to a person familiar with the matter.

Mudrick's gains derive from a combination of paper gains and realized trades, the person said.

Last week, AMC shares nearly tripled in value as the cinema chain's stock caught the attention of individual investors swarming popular Reddit forums who were looking to repeat the dizzying rally seen in shares of GameStop Corp.

Most of Mudrick Capital's gains, however, are from its holdings in the company's bonds, which rallied as the company's share price increased.

The firm also made about $50 million writing call options last week in the midst of the buying frenzy. The call options will enable holders to buy shares from Mudrick at a predetermined price.

When Mudrick provided AMC with the new loan, the firm also received AMC shares as part of its commitment fee, as well as part of a swap of some of the firm's holdings in junior AMC bonds. In that transaction, Mudrick swapped $100 million in AMC debt for shares.

The hedge fund, however, sold all of its AMC shares before last week's rally, the person added. The firm reinvested those proceeds into junior AMC bonds.

AMC shares ended the week at $13.30, up from $4.42 on Jan. 25. AMC's $1.5 billion 12% notes due 2026 last traded at 72 cents on the dollar Tuesday from 49 cents on Jan. 25.

Weeks after AMC warned it might run out of money and have to file for bankruptcy, Mudrick Capital stepped in in December to provide a new loan to the company.

The loan from Mudrick, along with news late last year of highly effective vaccines against Covid-19, fueled investor optimism that enabled the company to eventually raise $1.3 billion in debt and equity by the middle of last week.

Write to Soma Biswas at soma.biswas@wsj.com