Last month was a good one for retail investors long GameStop and AMC, either outright or via upside optionality.
Last month was also a good one for Jason Mudrick and his $3.1 billion distressed debt fund.
I mentioned Mudrick on Sunday evening in “Boiler Rooms And Silver Manias.”
Mudrick last year inked a deal with AMC, the gist of which is captured in the following from the 8-K:
On December 10, 2020, AMC Entertainment Holdings, Inc. entered into a commitment letter with Mudrick Capital Management, LP, pursuant to which Mudrick committed, subject to the satisfaction of certain conditions precedent, including the payment of the Commitment Shares and consummation of the Second Lien Exchange, to purchase $100 million in aggregate principal amount of new 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 to be issued by the Company. The Notes, when issued, will bear cash interest at a rate of 15% per annum payable semi-annually in arrears on July 15 and January 15, beginning on July 15. Interest for the first three interest periods after the issue date may, at the Company’s option, be paid in kind at a rate of 17% per annum, and thereafter interest shall be payable solely in cash. As consideration for its commitment, Mudrick will receive a commitment fee equal to 8,241,758 shares of the Company’s Class A common stock.
Immediately following the effectiveness of the Company’s registration statement on Form S-3 registering the Commitment Shares and Exchange Shares, subject to the satisfaction of certain customary closing conditions, Mudrick will also exchange $100 million aggregate principal amount of the Company’s 10%/12% Cash/PIK Toggle Second Lien Subordinated Secured Notes due 2026 currently held by Mudrick for 13,736,264 shares of the Company’s Class A common stock.
Those latter shares were sold by Mudrick somewhere between $3 and $4 each, a source told Bloomberg.
But, according to multiple sources cited in the same linked piece, Mudrick managed to make a cool $200 million in January, in no small part due to his fund’s holdings of AMC debt. In addition to the secured AMC debt Mudrick owns, he also reportedly bought second-lien bonds at between 7 and 20 cents on the dollar. They traded up at 70 cents last week.
And it gets better. According to Bloomberg’s sources, Mudrick also sold out-of-the-money calls not just on AMC, but on GameStop too. That generated some $50 million, apparently.
When you roll all of that up with the $113 million Silver Lake made on its AMC investment, you’re left to ponder a more than $300 million windfall for a hedge fund and private equity firm.
Not too bad, right?
Reactions on WallStreetBets seemed mixed.
“At least they aren’t trying to kill companies by shorting them into the ground,” one user said.
Great, another win for Wall Street. This time by a little guy who was rewarded for risk taking and acumen. Thumbs up!
A take away is that we need more derivatives. The price discovery…wow! Amazing how through the use of derivatives, the true price of that debt was determined, almost by some magical force. It’s like there really is an invisible hand.
It’s hard to find reliable public opinion polls that opine on the approval rating of Wall Street as an institution. Some well meaning members of the public might go so far as to say the approval rating of Wall Street as an institution is somewhere near the public’s approval rating of Congress. We can rest confident at night that we are being lead by institutions that are held in such esteem.
/s