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Why AMC Entertainment Is Falling 6% Today

By Rich Duprey - Dec 30, 2020 at 11:32AM

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There's been little good news among a wave of bad tidings.

What happened

Shares of AMC Entertainment Holdings ( AMC -15.82% ) were tumbling 6% lower in morning trading Wednesday after the movie theater operator announced it would be selling 50 million more shares to raise cash to survive.

So what

AMC is trying to avoid bankruptcy and says it needs some $750 million to make it through to the end of 2021. And while it would like to be able to borrow that money, it has not been above issuing new stock to raise cash.

Yet by adding more shares to the market, the theater operator is diluting existing shareholders. Earlier this month AMC registered 200 million shares.

Abandoned movie theater sign

Image source: Getty Images.

Now what

AMC warned investors again that if it does not raise substantial amounts of money it may have to seek bankruptcy protection from its creditors, a move that would wipe out existing shareholders. Some of its lenders have urged it to file for bankruptcy.

Theaters have been pushed to the edge by the coronavirus pandemic as they were forced to close and then to maintain reduced seating capacity.

The debut of Wonder Woman 1984 on Christmas Day did indicate there is a future for theaters once studios start releasing more films, as consumers chose to turn out in large numbers to see it. But the worrisome trend of simultaneously putting movies on streaming channels could indicate AMC and other operators may have no choice but to go bankrupt.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
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