Executive Summary

Hypothetical purchase of $100M face of 10.50% Senior Secured Notes due 2032 at 95.0 (cash investment $95.0M): current yield 11.1%, yield to maturity 11.7%. Recommendation: HOLD. Credit score 59/100 (Elevated risk). Base-case IRR 12.6%, downside 6.5%, severe -10.8%; probability-weighted IRR 6.1% vs a 12% hurdle; weighted P(default) 20%; severe-case valuation recovery 34%. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (6.1% vs ≥ 12.0%); Downside recovery meets minimum (valuation waterfall) (60.6% vs ≥ 70.0%); Principal protected in severe case (recovery ≥ price) (34 vs 95.0 vs recovery ≥ price).

Investment Thesis

Hypothetical: buy $100M face of the public 10.50% Senior Secured Notes due 2032 at an assumed 95. The notes are first-lien on substantially all assets and now sit ahead of only $420M of unsecured/convertible debt, but AOI fell 46% in H1-2026, coverage is below 2x, there is no revolver, and the $1.3B of secured claims is covered only ~1.1x by a going-concern value at 4.5x LTM AOI (and about 0.6x at the Downside trough). The question is whether a ~12% yield compensates for thin collateral coverage if linear decline accelerates.

The question: Does a 11.7% yield on a rank-1 secured claim compensate for 20% probability-weighted default risk and 66% severe-case loss?

Company Overview

Owner of AMC, BBC America, IFC, SundanceTV and WE tv plus the AMC+ / Acorn / Shudder streaming services and AMC Studios. Linear affiliate and advertising revenue is in secular decline while streaming grows; the company refinanced most of its 2029 debt into 10.50% secured notes due 2032 in 2026. HQ New York, NY; Media / Cable networks & streaming. LTM Jun-26 revenue $2.2B, EBITDA $313M (13.9% margin); total debt $1.7B, cash $464M. PUBLIC FILING

Industry / Market

Cable networks face a structural decline in basic subscribers and linear advertising. Creditors are paid by the cash flows of the existing library and by affiliate/streaming revenue; value in distress depends on the going-concern multiple placed on a shrinking AOI base.

Historical Financial Performance

Capital Structure

Total debt $1.7B (5.5x EBITDA); net debt $1.3B; liquidity $464M; loan-to-value through the target tranche 84%.

Credit Analysis

Net leverage 4.1x, EBITDA / interest 1.84x, FCF / debt 11.0%, DSCR 1.6x, liquidity ratio 2.7x. Score components: Leverage 9/15, Coverage 3/15, Liquidity 10/10, Free cash flow 9/10, Maturity risk 5/10, Margin stability 5/10, Revenue stability 8/8, Asset coverage 7/12, Industry risk 3/10. Score change vs FY2025A (10-K, 2025-12-31): 65 → 59 (Net leverage increased from 3.1x to 4.1x (-2.9 pts, negative); Interest coverage fell from 2.4x to 1.8x (-2.1 pts, negative); FCF / debt fell from 15.3% to 11.0% (-0.7 pts, negative); Asset coverage increased from 1.38x to 1.41x (+0.3 pts, positive)).

Debt Maturity Profile

Base Case

Revenue CAGR -3.6%; LTM Jun-31E EBITDA $251M (13.4% margin); trough EBITDA $251M; peak net leverage 3.8x; minimum EBITDA / interest 1.76x; cumulative FCF $556M. No payment default modelled. IRR 12.6%, MOIC 1.38x.

Downside Case

Revenue CAGR -6.2%; LTM Jun-31E EBITDA $163M (10.0% margin); trough EBITDA $163M; peak net leverage 7.3x; minimum EBITDA / interest 1.18x; cumulative FCF $75M. No payment default modelled. IRR 6.5%, MOIC 1.19x.

Severe Downside

Revenue CAGR -10.0%; LTM Jun-31E EBITDA $93M (7.0% margin); trough EBITDA $93M; peak net leverage 17.6x; minimum EBITDA / interest 0.64x; cumulative FCF ($362M). Payment default modelled in LTM Jun-29E; target-tranche recovery 34%. IRR -10.8%, MOIC 0.70x.

Covenant Analysis

Recovery Analysis

If the company defaults, recovery value is $479M (liquidation) in the severe case → 34% recovery (66% LGD) on the target tranche; downside 61%. Recovery value = MAX(going concern $428M, liquidation $479M) + cash, less administrative costs; severe case struck at LTM Jun-29E.

Investment Returns

Key Risks

• Thin interest coverage: EBITDA / interest 1.84x at LTM Jun-26 (EBITDA could fall 46% before coverage hits 1.0x).
• Severe-case valuation recovery of 34% is below the 95.0 purchase price: a 66% loss given default.
• Downside-case recovery of 61% falls short of the purchase price.
• Severe case produces a payment default in LTM Jun-29E.
• Covenants breach in the Downside case (LTM Jun-28E); none in the Base case.

Key Protections

• First-priority secured position on substantially all assets; 0% of recovery value is senior to us and 84% through our tranche.
• Liquidity of $464M (27% of total debt).
• Base-case refinancing tests pass for all 2 maturing tranche(s); 2 are repaid from cash.
• 10.5% fixed coupon with a pull-to-par from an assumed 95 purchase price
• First-priority lien on substantially all assets; only $420M of debt ranks behind us

Catalysts

• Feb-2029 maturity of $420M unsecured/convertible notes
• Call protection steps down from 2028-07-15 (105.250% → par in 2030)
• H2-2026 content slate and affiliate renewals

Due Diligence Items

Recommendation

HOLD. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (6.1% vs ≥ 12.0%); Downside recovery meets minimum (valuation waterfall) (60.6% vs ≥ 70.0%); Principal protected in severe case (recovery ≥ price) (34 vs 95.0 vs recovery ≥ price).

What would change my mind?

• EBITDA declines more than 46% from LTM Jun-26 (coverage < 1.0x) — or more than 23% (first covenant breaks).
• The entry price is above 96.4: the base case no longer earns the 12% hurdle (assumed price 95.0).
• Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 12.5x EBITDA (the severe case assumes 4.0x); the question is how much cushion we want.
• Collateral / enterprise value falls more than 13% from the base-case valuation: the tranche starts to take losses.
• Market access weakens: base-case pro-forma coverage at refinancing is 1.49x vs the 1.25x test, at an assumed 11.0% refinancing rate — a higher spread or lower EBITDA flips the test.
• Liquidity falls below $200M (hypothetical minimum-liquidity covenant).
• A new filing shows AOI / NOI below the Downside path, a further liability-management transaction primes our collateral, or open high-priority diligence items turn into findings.