Please ensure Javascript is enabled for purposes of website accessibility

Why AMC Entertainment's Stock Crashed This Morning

By Anders Bylund - Apr 13, 2020 at 12:54PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The movie theater chain is sliding closer and closer to bankruptcy filings due to the coronavirus crisis.

What happened

Shares of AMC Entertainment (AMC -0.94%) fell as much as 25% on Monday morning, climbing back to a milder 18% drop at noon EDT. Over the weekend, The New York Post wrote that the world's largest movie theater chain is looking into bankruptcy as a way out of the coronavirus conundrum.

So what

According to the Post, AMC is talking to longtime legal services partner Weil, Gotshal & Manges about a Chapter 11 bankruptcy filing. This is just the start of a potentially long process, but the newspaper's sources noted that nobody hires this high-dollar law firm on a whim.

"You don't hire [lead WG&M lawyer Ray Schrock] unless you are filing," the Post's source said. "You are not going to hire them at their hourly rate to have a beer with them."

In a completely empty move theater, the silver screen shows a close-up shot of a man in a surgical face mask.

Image source: Getty Images.

Now what

AMC is not collecting any meaningful revenue while its theaters are closed, but the company still faces substantial fixed costs. Its balance sheet was weak before the crisis started, and AMC will have trouble keeping the lights on when it's time to reopen the movie theaters.

A Chapter 11 bankruptcy would not necessarily wipe out AMC's market value, but these filings often trigger a massive sell-off and may lead to a harsher Chapter 7 filing later on. In a Chapter 7 bankruptcy, AMC's current shares would be completely worthless. If the company returns to the public market after that, it would be under a new ticker symbol representing a completely different stock.

The company hasn't gone that far yet, but the Chapter 11 talks are not a good sign. I wouldn't touch AMC's stock with a 10-gallon popcorn bucket.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$24.21 (-0.94%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.