(Bloomberg) -- AMC Entertainment (NYSE:AMC) Holdings Inc. common stock rallied as much as 32% after a Delaware court said it will hold a preliminary hearing on April 27, signaling a highly anticipated conversion between the shares and preferred units may take longer than expected.
The movie-theater operator has been pushing for a shake-up to its share structure that would convert preferred shares — ticker APE — into AMC common stock this month. However, the April hearing is considered a headwind by risk arbitrage traders looking to capitalize on the spread because it creates uncertainty around the timing of the one-for-one swap.
AMC investors are slated to vote on a string of proposals on March 14 that would approve the conversion along with a 10-to-1 reverse stock split and the ability to sell more shares. The more than a month difference between the vote and the hearing drove the gap between the two assets to widen to $5.45 at 2:43 p.m. in New York on Monday, the largest since early December.
The common stock spiked as high as $8.19 while APE shares slipped as low as $1.96.
Read: AMC’s ‘Home Run’ Arbitrage Trade Is Collapsing With Vote on Tap
A risk surrounding a delayed conversion date will force arbitragers to hold their bets against the common stock for longer, eating into potential profits, after the cost to short AMC shares surged in recent weeks.
“The preliminary injunction hearing on April 27 extends the time that investors have to hold long APE/short AMC by at least a month and a half, given the horrifically high cost of borrow this is a painful outcome for arbitragers,” said Cabot (NYSE:CBT) Henderson, who focuses on merger arbitrage and special situations at JonesTrading.