AMC Stock Swoons And Cinemark’s Takes Hit After Disputed Report Of Movie Theater Operations Scenario – Update

UPDATED with Tuesday stock movement. AMC Entertainment shares fell almost 18% on Monday to close at $3.19, with Cinemark stock also taking a hit after a report that Cinemark has expressed interest in operating select AMC venues.

AMC stock dropped another 10% on Tuesday to $2.86, its lowest point since November 6. Other companies in the sector finished in positive territory. Cinemark bounced back from Monday’s setback, rising 3.5% to $16.25, though it sold off again after hours.

Insiders at both exhibition companies describe the report as inaccurate. The New York Post, citing unidentified sources, reported that the two major circuits — which together control nearly one-third of all U.S. movie screens — could find themselves in an arrangement reflecting the strain of Covid-19. The coronavirus pandemic has shuttered theaters in much of the country, notably in revenue-rich markets like New York and LA, for most of 2020.

Cinemark has expressed interest in stepping in to run any venues where AMC is in default, the Post said, though no specific sites or markets were mentioned.

AMC last Friday said it needs an infusion of $750 million to make it through 2021. It announced the threshold in an SEC filing noting that it sold $100 million in debt to Mudrick Capital Management at a high interest rate.

In the filing, AMC said $400 million of rent obligations had been deferred to 2021 as of November 30. The company had $320 million in cash and cash equivalents as of that same date, down from $418 million at the end of September.

Cinemark, whose shares dipped 3% to $15.70, is in more solid financial shape and has projected having ample cash to operate with through 2021 even with ongoing closures and limited new product. That financial profile is one reason it was seen as a potential short-term solution for AMC, the Post said. Left unaddressed by the report was the structure of the arrangement or whether Cinemark would wind up with equity in its archrival.

Private equity firms are also circling the besieged exhibition sector. Apollo Global Management and other firms could wind up with operational control of AMC in the event of a bankruptcy filing. Private equity has a well-established playbook for managing distressed assets and trying to extract value from them, generally through aggressive cost-cutting. Apollo’s investments in the media business include some in troubled sectors like local broadcasting, and it is also among the bidders for control of satellite TV operator DirecTV.

All of this uncertainty comes as the exhibition businesses faces one of the most fraught holiday seasons in history, with the supply of new titles almost non-existent. Domestic box office is tracking for a decline of more than 80% from 2019 levels. WarnerMedia’s decision in recent weeks to release Wonder Woman 1984 and the entire 2021 slate of Warner Bros on HBO Max at the same time it hits theaters has only heightened anxiety. The beginning of coronavirus vaccine injections this week has buoyed the outlook for other sectors of the economy, but the cash drain on AMC continues to make many investors nervous.

Anthony D’Alessandro contributed to this report.