AMC Entertainment (AMC -0.15%), the well-known theater chain, was on the ropes as a result of the pandemic. However, the company was able to sell stock, raising more than $300 million, as shares were driven higher by investors on the WallStreetBets subreddit, using the #SaveAMC. "Any talk of an imminent bankruptcy for AMC is completely off the table," said CEO Adam Aron.
On this clip from Motley Fool Live, recorded on Jan 29, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Brian Withers discuss the theater chain's troubles and whether WallStreetBets saved AMC.
Jason Hall: The saga continues, guys. It keeps going with this AMC, GameStop (GME 0.92%), WallStreetBets. I'm looking at the numbers here. AMC Entertainment and GameStop stocks both finished up another 50% today. Who knows where this is going to go?
Like I've said a couple of times, I've never considered GameStop to be a zero, a company that's in major trouble. It's just a company in decline. They're trying to work through that decline and find some ways to remain relevant.
AMC Entertainment, on the other hand, we've also talked a lot about it here. This is a company that has been in a lot of trouble, but they've raised some money, guys. This big run has helped a little bit. They probably haven't raised as much money as they could have, but they've got plenty of cash on their books now to turn the corner. Here's my question, Brian Withers and Danny if you can weigh in on this. Did WallStreetBets actually save AMC?
Brian Withers: No. Here's the trouble with the stock going up. It's not really AMC's money. I don't know if AMC went out with and released new stock, new shares to the market, but this is a tough situation that we haven't been in. Are they taking advantage of this loophole in the efficient market theory? Would they actually get in trouble from the SEC [Securities and Exchange Commission] by getting new shares into the market? That's really the only way AMC is going to make money from this. What people really need to do is go to the movies. [laughs]
Jason Hall: You're right, long-term. There's there's no doubt about that. I'm going to add one more little piece of information that I think is interesting. I think this dropped yesterday afternoon. This is big. Then Danny, I'm going to ask you to weigh in. The company issued an 8-K yesterday, which is the SEC filing whenever there's material news. According to this 8-K, I think it came out on the 28th maybe after market, and this is what AMC said, "On January 27th, 2021, affiliates of Silverlake Group and certain co-investors," these are noteholders, "elected to convert all $600 million of the company's 2.95% convertible senior secured notes into classic common stock at a conversion price of $13.51 a share." This is one of those easy-to-miss ones where the company didn't do a secondary.
Brian Withers: They had an option, yeah.
Jason Hall: But a noteholder, a debtholder with some secured notes elected to convert them into stock.
Brian Withers: That doesn't benefit AMC either.
Jason Hall: Of course, it does, because the debt goes off their books, there's $600 million of debt.
Brian Withers: It's a debt conversion. Debt into stocks.
Jason Hall: It's strange. Danny, I want to hear your thoughts here, again because, I want to get to Brian's point first, people need to be going back to the movie theaters. [laughs] Before 2020, this was a company whose business was steadily in decline. I think that's the bigger point that Brian's trying to make. Danny Vena, come on, hop in here.
Danny Vena: I was surprised with the stock being as volatile as it is. I think you said the conversion price was $13 a share? Well, the stock is barely over $13 a share right now. That was a calculated risk on their part that this short squeeze and WallStreetBets situation would continue. Because otherwise, if the stock loses a significant amount of value, that $600 million worth of debt could go to what, half of that or less than that? I'm surprised that they did that, and I think what they're doing is they're setting themselves up to, if that stock was up significantly sometime over the next several days or several weeks, they're going to cash out.
Jason Hall: Yeah, we'll see how it plays out because it's definitely good for AMC in the near-term. But here's the other part too. That 2.95% interest rate, this was inexpensive debt. It doesn't fix all of the company's problems by any means. They probably do have enough cash to go a year, year-and-a-half, but their long-term prospects still remain troubled, guys.