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AMC Stock: Do the AMC Bankruptcy Rumors Hold Water?

Investorplace News 12/8/2022 Samuel O'Brient
AMC movie theater front glowing in the setting sun with the name shining bright red. AMC stock. © Provided by Investorplace News AMC movie theater front glowing in the setting sun with the name shining bright red. AMC stock. Source: Ian Dewar Photography / Shutterstock

AMC Entertainment’s (NYSE:AMC) difficult year may be about to get much worse. The movie theater chain has faced plenty of problems recently. Earlier this week, reports alleged that Sam Bankman-Fried’s FTX may have manipulated AMC stock. But as it turns out, AMC may be about to have even bigger problems, although a person familiar with the situation says otherwise.

Today, shares are in the spotlight on rumors that the company’s creditors have begun to organize. Reorg reports that both first- and second-lien lenders to whom AMC is indebted are working with restructuring advisors. As investors consider the possibility of bankruptcy for this controversial name, they are forced to ask an important question: is the show over for AMC?

This isn’t the only story regarding mobilized creditors recently. Yesterday, Carvana (NYSE:CVNA) — a fellow struggling meme stock — saw shares plunge on news of a creditor pact. Both stocks have fought hard to stay afloat this year as market forces have pushed them down. But if AMC’s lenders are mobilizing against it, this could easily be curtains for the struggling theater chain.

What’s Happening With AMC Stock?

Momentum has slightly shifted today. AMC stock popped in premarket trading, with shares now up about 3%. That may be because someone familiar with the company has addressed the claims. Seeking Alpha reports that an anonymous expert says AMC is not facing any risk of restructuring or bankruptcy. The source also claims that second-lien lenders are “working on creative ways to reduce the theater chain’s debt and raise new money for the company.”

According to the report, the company could reach an agreement with the second-lien holders in the coming months. While that may be comforting news for AMC stock shareholders, it doesn’t mean that AMC is totally out of the woods.

Back in September, CEO Adam Aron did say that AMC was in a “very different situation” than Cineworld (OTCMKTS:CNNWQ) when the rival declared bankruptcy. Until someone directly connected to AMC goes on record and elaborates as to why the company isn’t on the verge of bankruptcy now, though, AMC will be shrouded in uncertainty. The bankruptcy rumors have only reignited concerns.

Despite some slight gains over the past month, shares are still down more than 75% year-to-date (YTD). AMC was already poised to close out a disappointing year in the red before bankruptcy rumors started to swirl. Now, the company may be facing Chapter 11 and the possibility of mobilized creditors. This leaves shares with little hope of rebounding. Market momentum doesn’t favor stocks in this kind of position.

The Bottom Line

Even if the source’s statements prove to be true and second-lien lenders are able to help reduce AMC’s debt, that doesn’t mean shares will suddenly rebound. Even at the height of the meme stock frenzy, AMC remained a questionable investment at best. As InvestorPlace’s Eddie Pan notes, despite being the country’s largest theater chain, its business model reflects the past, not the future. AMC’s latest innovation is movie-themed merchandise, which hasn’t provided AMC stock with the catalyst it needs to keep rising.

The truth is that this show has been over for a while. Even if they are only rumors, the bankruptcy whispers may usher in the end credits for a company that has struggled to innovate. Its story should serve as a reminder to investors that meme stock hype alone does not make a name profitable.

On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.

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