We reported earlier that AMC Entertainment (NYSE: AMC) has been selling off stocks and bonds to raise money. In early December, AMC raised $200 million, which is impressive. But the company needed at least $750 million to survive after the huge hit to the movie industry from the pandemic. AMC succeeded.
AMC raised $1 billion
The theater chain not only came through with its goal to stay afloat, it exceeded it by raising $1 billion. One reason was that AMC benefited during the so-called "Reddit rally," the day Reddit's "Wall Street Bets" forum, a group of small traders, many of whom were using trading app Robinhood, started buying companies with a large percentage of shorted shares. GameStop (NYSE: GME) wasn't the only target that day. AMC was riding the wave as well. While GameStop shares rose a whopping 134%, AMC's rose 301%.
Before the Reddit rally
Before the Reddit rally, AMC was facing bankruptcy from movie theaters being shut down during the pandemic. Even after reopening about 500 of its 600 nationwide theaters, movie attendance has been way down, both from people not wanting to enter a movie theater during a pandemic and from the lack of new movies being filmed, again due to the pandemic.
By November 2020, AMC stock was down 70% from where it was pre-pandemic. Something had to happen; otherwise, this largest theater chain in the United States would run out of money by year's end.
Small investors were the ticket
AMC had a couple of options: Take a billion-dollar loan to keep the company operating or try to raise money from small investors. AMC went with the latter, working with both B. Riley, a nontraditional financial services provider, and multinational financial services company Goldman Sachs Group (NYSE: GS). Acting as equal partners, both firms sold enough shares to keep AMC out of bankruptcy. Says AMC CEO Adam Aron: "This means that any talk of an imminent bankruptcy for AMC is completely off the table."
Get people back in theaters
AMC has been saved for now. But will the movies ever be as popular as they were pre-pandemic? It depends. If new movies (that people want to see) are made and if COVID-19 declines and/or more people are vaccinated, people will likely return to one of America's favorite pastimes, even with the popularity of streaming.
The Millionacres bottom line
Most companies in AMC's position prior to raising money would probably have taken a restructuring loan if offered, particularly when advisors are putting on the pressure to do so. But because AMC tried a new way, and with some dumb luck due to the Reddit rally, it's back in business and operational through most of 2021. Bring on the popcorn.