AMC-APE Spread Widens With Deal ‘Almost Impossible’ in 60 Days

(Bloomberg) — The spread between AMC Entertainment Holdings Inc.’s common and preferred shares widened Tuesday after a hearing on the movie-theater’s conversion dispute indicated that a settlement is unlikely in the next two months.

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The company’s common stock rose 3.8%, while its preferred shares — listed under the ticker APE — fell 6.6%. That’s broadened the gap between the two units to $3.73 from $3.44 Monday.

The Delaware hearing comes as Vice Chancellor Morgan Zurn was set to consider a proposed settlement announced in early April that would allow AMC to move forward with its conversion plan.

“I think it’s going to be almost impossible to do this in less than 60 days, given the stockholder interest that we anticipate,” Zurn said. The judge was open to “getting this wrapped up by the end of June,” tentatively suggesting June 29 or June 30 for a settlement hearing.

To risk arbitrage traders, the court ruling stands to be the last and major hurdle before they can fully capitalize on the spread, with the expectation that the price gap would vanish once the conversion goes through.

Read: AMC-APE Deal Hearing Appears Likely to be Set for Late June (1)

For many that had hoped for a straightforward process, the ongoing court case keeps adding uncertainty and making their trades more costly.

Read: AMC-APE Bet Looks Like Easy Money, But It’s Perilous for Traders

Earlier this month, the judge ruled against AMC’s proposed expedited settlement timeline, pushing the spread wider. The APE conversion was approved March 14.

Implied volatility for AMC July options surged as traders piled in to hedge against a possible settlement at the end of June.

More than 25,000 contracts each of July $10 calls and puts traded together, and about 9,000 of the same strike for May were traded versus July, according to block trade data compiled by Bloomberg, signaling traders rolling positions out further.

Outright put positions were also being pushed further out, with more than 25,000 June-July $5 put spreads trading.

–With assistance from Michael Leonard and David Marino.

(Updates shares, spread, chart and adds options trading)