Shares of movie theater operator AMC Entertainment (AMC) fell 11% out of the gate on Oct. 13. Although it quickly recovered some ground, the stock was still lower by around 8% at 10 a.m. EDT. That the drop wasn't larger suggests that investors are well aware of how bad things are at AMC.
That said, in an update filed with the Securities and Exchange Commission, AMC laid out the situation: "given the reduced movie slate for the fourth quarter, in the absence of significant increases in attendance from current levels or incremental sources of liquidity, at the existing cash burn rate, the Company anticipates that existing cash resources would be largely depleted by the end of 2020 or early 2021." That's troubling news and suggests that AMC's risk of bankruptcy has materially increased, largely driven by the ongoing impact of COVID-19.
The rest of AMC's update wasn't much more positive. The good news was that 83% of its U.S. theaters have reopened. The bad news is that attendance is down 85% year over year. And with movie studios pushing out the release dates for major films, or canceling them altogether in favor of streaming services, there doesn't appear to be anything that will turn the tides here. In other words, AMC needs to raise cash fast and it is getting desperate.
AMC is not a great choice for most investors at this time. Two of the primary ways that it can quickly raise capital is to issue more debt, on top of its already heavily leveraged balance sheet, or sell stock, which will dilute current shareholders. Landlords might be willing to grant additional rent concessions, but at some point there's only so much a landlord can do. After those options, the choices get even more complicated, including asset sales, joint ventures, and an outside investor willing to jump into the fray. None of these choices is likely to be pleasing to stock investors given the openly desperate situation the company finds itself in.