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Collateral Rewards - The Game Stop Stock Play Could End Up Saving AMC Theaters

(AP Photo/Richard Drew, File)

The unexpected national story could also have an unforeseen net benefit for motion pictures.

The country has been caught up in the drama, comedy, intrigue, and thrill-a-minute storyline in the GameStop stock market saga. This ever-evolving news event has generated so much interest it has been featured on message boards, generated national headlines, and has garnered the attention of the White House. It continues to spin out of control.

The most telling aspect in all of this is you have Wall Street raiders crying foul and demanding both restrictions to be placed on the markets and lobbying to be bailed out for losses incurred by making a risk play in the market — all because citizens made legal stock purchases. They have even earned the derisive term ‘’Basement Bandits’’, for purchasing stocks. Even Elizabeth Warren weighed in on the matter today, basically saying she is displeased with the rich people on either side of the issue, all while admitting she is not too sure what is happening.

The concept of the wealthy elites feeling a pinch – or a punch – is not generating a ton of sympathy.

There has been a rather encouraging side event to the Wall Street hysteria. More than just GameStop, a few other devalued companies saw their stocks go through extreme volatility, one being the long-suffering AMC Theaters. The exhibitor has been particularly under intense pressure due to the never-ending pandemic severely curtailing business. As the governmental lockdowns extended, studios have pushed back theatrical releases numerous times, robbing them of product. The practice of releasing major titles onto streaming services, or video-on-demand platforms, has also cut down on foot traffic where openings are permitted.

AMC was speculated to face bankruptcy last summer but managed to find a white knight in a private equity firm – Silver Lake. The two entities had an existing debt management agreement, but both sides reached a new bond agreement where Silver Lake would deliver an infusion of needed cash and obtain new stock offerings. This arrangement was initially a lifeline for AMC but now the new stock activity has delivered relief – and profits.

While AMC was not experiencing the same stratospheric pricing as GameStop, it was seeing surging prices, and Silver Lake saw an opportunity. The equity firm decided to convert its $600 million bond into stocks, receiving the converted shares at $13.50. AMC was trading at the time at the $20 per share price. This led to $600 million in liquidity for the theater chain, and Silver Lake stood to make close to $300 million, while becoming the second-largest holder of AMC securities, behind majority interest holder The Wakanda Group.

All of this is not only needed but essentially required for AMC to survive. The exhibitor, along with the other national theater chains, has suffered with the shifting landscape of the motion picture economy. Studios have been wrestling with how to recoup revenues as they have products on the shelves and limited production schedules to generate shows, all with a limited marketplace. The largest film markets — Los Angeles and New York, and California in general — are not only closed, but even the open states see theaters dealing with limited capacity to allow for safe spacing between patrons. For this reason, just before Christmas, a number of studios pushed their release plans forward to this coming May.

One of the ways the studios are coming up with distribution options is to move fresh releases onto new streaming services. Disney+ has been the landing spot for ‘’Mulan’’, and the Pixar holiday release ‘’Soul’’. Warner Brothers made the crippling announcement that all of its 2021 releases would debut on both movie screens and it HBO Max on the same date. The soon-to-arrive Paramount+ will have its planned ‘’SpongeBob Movie-Sponge Bob on the Run’’ make its debut on the fledgling service as well.

So as theatrical companies are still struggling with a marketplace in limbo, the largest theater chain in the country will be able to maintain its thousands of movie screens. The Reddit-GameStop story has all of Wall Street and Silicon Valley in a frenzy, but as collateral rewards, AMC Theaters can breathe a sigh of relief — and its equity partner has won the investment equivalent of The Academy Award.