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‘Meme stock’ rally rescues AMC Theatres from $600M debt

Theater chain gets unexpected lifeline when private equity trades a corporate IOU for stock

AMC’s Stock Is Latest Target For Retail Investors Organized On Reddit Message Boards Photo by Scott Olson/Getty Images
Owen S. Good is a longtime veteran of video games writing, well known for his coverage of sports and racing games.

This week’s bizarre “meme stock” rally, which has delivered lottery-like windfalls for holders of GameStop stock, also wiped out $600 million in debt owed by the AMC Theatres chain.

That’s because, on Wednesday, a private equity firm named Silver Lake — and private equity firms are popularly considered the “bad guys” in this snobs-versus-slobs drama — elected to convert the corporate bonds it held into AMC Entertainment Holdings stock. Although the theater chain’s stock price has tumbled and soared since the move, the debt relief is permanent.

In November, AMC was warning investors that “there is substantial doubt about our ability to continue as a going concern.” The reason is obvious: the COVID-19 pandemic has savaged the movie theater business, and the broader stimulus, payroll, and recovery actions by the U.S. government have done little to prop it up.

However, on Monday, AMC CEO and president Adam Aron painted a less bleak outlook for the company, after it secured $917 million of new equity and debt capital, saying in a news release, “This means that any talk of an imminent bankruptcy for AMC is completely off the table.”

Wiping out more than half a billion dollars in debt, though, should take a lot of pressure off AMC in the short term. “A week ago, it was not crazy to think this company was doomed,” Bloomberg’s Matt Levine wrote on Thursday. “Now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week.”

As of this weekend, AMC was third on a list of U.S. stocks being short-sold the most; Redditors in the r/WallStreetBets subreddit, and elsewhere, have piled into these shorted stocks because, essentially, institutional investors are betting the companies will fail and their share prices will go down. The collective action of Reddit’s day-traders (“retail investors,” as the industry calls them) has driven some share prices up, with GameStop’s headline-making rally leading the charge.

Yet, by converting their AMC debt holding to AMC stock, the Silver Lake equity firm has gotten hurt by a falling stock price, too. The conversion price for the bonds Silver Lake held was $13.51; Silver Lake cashed in on Wednesday, when AMC’s shares ended the day at $19.90, more than 400% better than the day before. Smart move, right?

Well, AMC’s share price at publication time Friday was about $15 — but it closed Thursday at $8.63. So, unless Silver Lake found some other sucker to buy the stock before it bottomed out, they’ve been riding a roller coaster that at best has them about 5% to 7% ahead of their original position, with no guarantee of staying there.

“I don’t really know what those convertible holders were thinking but there you go,” Levine wrote. “Maybe they were thinking, ‘Wow, Redditors really want to buy this stock, we’d better get some stock to sell them.’”

GameStop’s stock price was $19.95 on Jan. 12 when Reddit’s disruption-minded investors made their move. It closed at $193.60 on Thursday after eclipsing $400 that morning, the first major drop for the stock since the feeding frenzy began. GME, at publication time, is still $348.

The company on Thursday issued its first public comments since its stock became front-page news all over the world. GameStop’s statement, however, concerned the 100 score it received from the Human Rights Campaign for its LGBTQ workplace equality practices. The company avoided talking about its stock altogether, even though its market capitalization is (on paper, of course) now $24.2 billion.

Analysts are assuming that the hype for GameStop, AMC, and other stocks will cool off as short-sellers either give up, are no longer forced into buying the stock to cover their losses, or U.S. regulators finally intervene. The Biden administration on Wednesday said Treasury secretary Janet Yellen and her economic advisors were monitoring the situation.

The mobile trading app Robinhood on Thursday suspended or restricted trading in GameStop, AMC and other stocks in response to the mania, a move that drew condemnation from lawmakers as disparate as Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Ted Cruz (R-Texas).

Correction: This story has been updated to correct timing on a statement from AMC and adds a quote from AMC CEO and president Adam Aron.

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