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Why AMC Entertainment Stock Cratered 23% at the Open Today

By Reuben Gregg Brewer – Dec 14, 2020 at 10:33AM

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The story at AMC keeps getting worse, and now it looks like vultures are starting to circle.

What happened

Shares of movie theater operator AMC Entertainment Holdings (AMC -4.17%) fell sharply at the open on Dec. 14, dropping a little over 23% in the first hour of trading. News and rumors were the big reason for the painful decline.

So what

The previous week ended with AMC announcing that it had raised $100 million in financing from a company that specializes in distressed debt. At the same time, AMC announced that a previous $100 million loan from the same company would be exchanged for nearly 22 million shares of common stock. The backdrop here is that AMC has been warning that it could run out of cash before the end of 2020 or in early 2021. It is, basically, doing all it can to survive the hit from coronavirus-related shut downs, occupancy restrictions amid the reopening process, a weak movie lineup, and the reluctance of customers to go into group settings.   

A woman in a movie theater eating popcorn.

Image source: Getty Images.

So there's plenty of reason for investors to be worried about AMC and a sell-off isn't shocking. However, there's also a rumor going around that some big-name investors in the company's debt are trying to steer it toward filing for bankruptcy protection. If that were to come to pass, common stockholders would most likely be wiped out. With that added knowledge, it might seem shocking that the stock hasn't fallen even more.  

Now what

AMC is, at best, a high-risk turnaround play. It is not appropriate for most long-term investors. In fact, the future is looking more and more grim. Worse, a coronavirus vaccine isn't likely to be distributed widely in time to provide much help. It's so bad that competitor Cinemark Holdings is rumored to be eyeing AMC locations that it can take over in a bankruptcy situation.   

Reuben Gregg Brewer 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.

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