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If This Movie Chain Goes Bankrupt, Investors Will Get Zero

Investors would need to dig hard to find a public company in as much trouble as AMC Entertainment Holdings Inc. (NYSE: AMC). Bankruptcy may be ahead for the huge movie theater chain. Should that be its eventual financial destination, current shareholders likely will get paid out nothing.

AMC shares have dropped 60% this year and were down closer to 80% in the past two months. Over the past two years, the stock has dropped almost exactly 80%.

The sell-off since March has been largely triggered by two events. The first is that the COVID-19 pandemic closed theaters completely in the spring. AMC was able to open some locations, with the help of strict social-distancing and mask-wearing rules, as well as a program to disinfect theaters in connection with Clorox. The plan was announced on June 18. At the time, Adam Aron, CEO and president of AMC Theatres, announced: “The Clorox Company, and current and former faculty of Harvard University’s School of Public Health, AMC Safe & Clean represents a comprehensive commitment with a broad array of tools being used in sanitizing our theatres.”

As if to add insult to injury, AT&T’s WarnerMedia division announced that its 2021 feature film releases would happen both in theaters and on its HBO Max streaming service simultaneously. The plan robs theater companies like AMC of their exclusive access early access to these movies.

AMC has pursued several options to stay afloat. Their importance cannot be underestimated as the recent surge in COVID-19 cases may shutter its locations again. One action involves the sale of a huge number of new shares. Another was a distressed debt loan of $100 million.

AMC may not be helped by either of these. Barron’s reported: “Things are getting dire for the pandemic slammed company, which hasn’t made a secret of its need for cash to get through the current business environment. Without more infusions, cash will run out next month, AMC said. To get through next year, it will need $750 million of additional liquidity.”

For investors who want to know what they may risk, J.C. Penney’s example represents a good lesson. Shareholders who thought the retailer might stage a turnaround because of holiday shopping were hit with the bankruptcy and got nothing.