Trading in shares of AMC Entertainment Holdings was restricted yesterday on several trading platforms, but the company has taken advantage of its sudden popularity this week to give itself extra financial boosts and to be better prepared for a recovery in US consumer spending.
The multinational theater company has had a rough year due to the coronavirus pandemic. Some movies switched their debuts from its 1,000+ theaters to streaming platforms like Netflix and HBO. Others have postponed their premieres. AMC suspended US operations between March and August, then limited seating capacity after re-opening some of its theaters. During its latest quarter ending on Sept. 30, revenue had fallen more than 90% to $119.5 million from $1.3 billion; and its net loss skyrocketed to $905.8 million, an 851% increase from the same period in 2019. Its dismal financial performance was why AMC became one of the most shorted companies in the US.
But at the beginning of this week, AMC president and CEO Adam Aron said, “any talk of an imminent bankruptcy for AMC is completely off the table.”
A few things made this sunny view possible. After AMC was highlighted by a stock market-focused Reddit forum, its share price rose 300% on Jan. 27. On Jan. 28, many retail brokers restricted trading in AMC shares. ” The trading platforms Robinhood and E*Trade temporarily restricted trading of AMC yesterday; while Charles Schwab and TD Ameritrade added requirements on certain trading options.
With a market value of nearly $3 billion today, AMC and holders of its debt took advantage of the elevated share price this week. On Jan. 25, the company announced it raised $506 million of equity and another $411 million of debt. That additional liquidity “should allow the company to make it through this dark coronavirus-impacted winter,” AMC said. That same day, it launched a new offering to sell up to 50 million additional shares.
After two days, AMC announced it sold all of the new shares, plus 13.3 million other shares from a previously announced stock sale. The proceeds totaled $304.8 million.
On top of that, a group of lenders decided to exchange in $600 million of loans for shares in the company. For AMC, that means no more interest and no more payments. For Silver Lake, the private equity firm and lead lender, it means no more concerns about AMC’s ability to repay, just the price of AMC’s stock, which if Redditors have anything to do about it, will keep on going up.
Five days ago, AMC’s operational concerns were serious enough to warn investors that it may not exist for much longer. Now that its financial runway has been extended by over a billion dollars, AMC can take more time to negotiate with theater landlords about how it will pay overdue and future lease payments; and with studios about releasing films.
Even with the recent investment interest, experts are still concerned about whether AMC’s business model can ever return to pre-pandemic levels of success. “For businesses such as AMC that rely on people being in large numbers and close quarters together, I think that’s going to remain a difficult proposition for quite some time for the foreseeable future,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
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