It's a race against time for AMC Entertainment Holdings (NYSE:AMC). The multiplex operator warned earlier this week that it could run out of money by the end of the year. Only a bounce in attendance or a fresh infusion of cash could save the day at this point.
By Tuesday night sources were telling Bloomberg that AMC was considering a potential bankruptcy filing, but CEO Adam Aron would go on to deny that report. The only contingency plan on the table right now is raising additional capital through an equity offering. The situation isn't pretty, but this isn't necessarily the end of the country's largest multiplex operator as most of us know it. However, after 100 years of entertaining filmgoers this is shaping up to be AMC's most daunting challenge.
A bridge loan too far
Sizing up what a bankruptcy would mean depends on where you stand as a fan of AMC. If you're just a moviegoer, a bankruptcy reorganization doesn't necessarily mean the end of your relationship with the exhibitor. AMC will work with its creditors on a comeback plan, and it will have the flexibility to get out of some of its more cumbersome leases. You may lose a couple of theaters along the way, but your AMC Stubs membership and even your premium A-List subscription will live on to see another day.
If you're a shareholder, the news is far more grim. A bankruptcy reorganization will likely wipe you out. AMC may live on after a bankruptcy reorganization with a new lease on life and a kinder debt burden, but common stock shareholders are typically zeroed out in the process. Put another way, no matter when you buy AMC you're probably eyeing a 100% loss if you hold on through the bankruptcy. If it continues to trade after the process is complete it will likely be freshly minted shares owned entirely by its new owners.
AMC's CEO may insist right now that his company isn't considering a bankruptcy, but it won't be up to him if AMC isn't able to raise new capital. Attendance has plummeted 85% since theaters started to reopen in August, and Hollywood's biggest hit factory just announced that it will bypass theatrical distribution if it sees consumer-direct releases as being more financially lucrative in the future. We've already seen most of the big movies that were supposed to hit theaters in upcoming weeks suspend their multiplex premieres.
AMC has never been this low on the consumer discretionary stocks food chain. You may make out just fine as a film buff if AMC is able to navigate these tricky waters and evolve with an innovative business model under a kinder debt burden. A scarier fate awaits you as a shareholder if AMC has to play the Chapter 11 bankruptcy reorganization card. Just as a theater does after every screening, it will mean clearing out everyone from the previous showing to make room for new audience members. Know what you're getting into, AMC shareholders.