Silver Lake, meanwhile, is one of the world’s largest technology investors, controlling $75 billion in assets from its headquarters in Menlo Park, Calif.
But the stock market surge fueled by the subreddit group WallStreetBets last week improbably brought together and benefited both of them.
The rally that propelled AMC Entertainment’s share price to new heights also triggered Silver Lake’s ability to convert a $600 million debt note from AMC into stock. That eliminates the principal and all future interest payments from AMC to Silver Lake — and helps the pandemic-battered movie theater company, the nation’s largest, keep the Dakota Square and many of its 595 other locations nationwide running.
The development is part of an investor narrative that is converging Main Street, Wall Street and the pathways of the Internet in unprecedented ways, and possibly even redeeming moviegoing in the process.
In addition to the Silver Lake conversion, the rally also allowed AMC to issue $304 million in new stock last week as its shares became more attractive to investors. If the coronavirus made AMC an accidental victim of forces beyond its control, then WallStreetBets is a kind of karmic payback, a shot at fresh financial life for reasons it equally had nothing to do with.
"Unlike GameStop, AMC was really in danger,” said Michael Pachter, an analyst at financial services firm Wedbush Securities who closely follows the movie theater industry. “They didn’t intend to,” he said of the WallStreetBets group. “But they 100 percent have thrown AMC a lifeline.”
On Tuesday, the share price dropped 41 percent to close at $7.82 before ticking back up 3 percent in after-hours trading. While the fall could affect AMC’s ability to issue new stock, the financial benefits brought on by the rally of the previous week — both the debt conversion and $304 million in stock — cannot be undone, ensuring the company already has many of the weapons needed to avoid bankruptcy.
But questions do remain about AMC’s future. Eric Handler, an analyst at MKM Partners, said in a note to investors Monday that AMC’s then-$13 share price was “decoupled” from the reality of its business. He set a share-price target of just $1.
But Pachter and other analysts now think AMC can get at least to September, when many experts think mass moviegoing will have returned, without raising any new capital or significantly retrenching — a thought hard to imagine just a few months ago.
Ryan Noonan, an AMC spokesman, did not reply to a request for comment.
AMC was a challenged company even before the pandemic. In contrast to more deliberate competitors Regal and Cinemark, AMC had expanded quickly in recent years in the United States and around the world, going from 5,400 screens worldwide in 2015 to 11,000 in 2020. It also upgraded many of its theaters in the United States. It began last year with about $5 billion in debt — on $1.5 billion in revenue.
The pandemic, which significantly scaled back ticket and concessions revenue, tightened the vise. Studios began postponing their releases or moving them to streaming services, governments limited or prohibited attendance, and consumers largely stayed home. AMC’s revenue was down 91 percent in the third quarter of 2020, the most recent period for which earnings are available. Debt ballooned to about $6 billion.
The company recently said it was burning through $125 million per month to cover personnel, upkeep and rental costs, with very little revenue in return. Americans spent only $60 million at the box office last month, which would mean AMC, with about a quarter of the country’s screens and required to split the revenue with studios, would end up with only $7.5 million from ticket sales, plus whatever meager concession sales went with it.
Bankruptcy reorganization seemed increasingly likely, experts said. That would allow the firm to cancel all its leases and start fresh, presumably only in more viable markets. Many AMC locations would then be closed or bought up by competitors.
But matters recently began to turn — slowly, and then very quickly.
A week ago, the company announced that it had secured about $400 million in debt capital by expanding a credit facility tied to its Odeon chain in Europe, along with $500 million via a host of financial measures, including new stock and restructured loans, over the previous six weeks.
“Today the sun is shining on AMC,” Adam Aron, AMC’s chief executive and president, said then. “Any talk of an imminent bankruptcy for AMC is completely off the table.”
Some of the money it secured, however, was expensive; a $100 million loan it took from Mudrick Capital Management, which specializes in distressed assets, came with a very high interest rate of 15 percent.
Then WallStreetBets happened. In a bid to put the squeeze on hedge fund short-sellers, members of the popular stock trading group on the Reddit website started talking up and buying AMC stock.
The AMC share price nearly quadrupled, to $20. It then went on a roller coaster as some investors sought to cash out and retail investors were for a time restricted from trading on the Robinhood trading platform. But it still closed trading on Monday at $13.37, up 162 percent over its price of $5.09 a week earlier, before cratering Tuesday.
Those higher prices enabled both the Silver Lake conversion — the company turned a 19 percent profit with the move — and allowed AMC to raise $304 million by issuing new shares. It was a striking reversal from a time not long ago when it seemed as though AMC might soon be shuttering locations en masse. No matter what happens to investors, who experts said could be in for a crash, many communities nationwide may now avoid a harsh fate for their local AMC theater.
The ability to operate uninterrupted deeper into 2021, Wedbush’s Pachter thinks, will allow AMC to get to a point in the calendar when coronavirus vaccines will be widely available and consumers will return to theaters. Studios have signaled their embrace of this timeline by scheduling a slew of movies for the second and third quarters, with the new Fast & Furious film “F9” and the Marvel picture “Black Widow” set for May, and the long-awaited sequel “Top Gun: Maverick” set for July.
Still, some analysts remain skeptical. AMC’s financial moves, they say, don’t address the broader challenges to moviegoing of streaming, the pandemic or — more specifically for AMC — all the money it owes.
Handler, the MKM analyst, said that “there is still approximately $5.7 billion of debt, a total which is growing each quarter due to deferred interest payments." He added that “there is also the overhang of $450 million of deferred rents, which will someday need to be addressed,” referring to the company’s decision to withhold rent for many sites during the pandemic.
An independent theater owner, speaking on the condition of anonymity so as not to appear to be criticizing a rival, said he thinks that even with the new cash, many AMC locations may be available for purchase as the company seeks to pay down that debt. But he said it was important not to conflate the company’s health with that of the theatrical business.
“I’m still not sold on AMC,” the owner said. “But I believe wholeheartedly moviegoing will be okay.”