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How AMC staved off bankruptcy before it got lucky with Reddit rally

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AMC Entertainment CEO Adam Aron has wowed corporate America with his unusual plan to keep the pandemic-plagued theater chain afloat by selling loads of stock to small investors.

But getting on the right side of the “Reddit rally” wasn’t always easy and sometimes required Aron to clash with his powerful Wall Street allies, including his friends at private equity giant Apollo Global Management, sources said.

AMC, which is the nation’s largest theater chain, said on Jan. 25 that it had raised close to a billion dollars to help it through the pandemic, which has decimated movie ticket sales since March. Roughly half of the $917 million AMC raised was from the sale of new stock.

As the world now knows, AMC’s fundraising efforts came just in time to cash in from a bizarre trading phenomenon known as the “Reddit rally,” which saw small traders using Reddit trading forum WallStreetBets and no-fee trading apps like Robinhood to invest heavily in beaten-down stocks.

In addition to AMC, the frenzy also increased investor appetites for shares of video-game retailer GameStop and Blackberry.

But late last year, AMC hadn’t yet benefitted from the rally and Aron was being urged by his advisers, a team that included law firm Weil Gotshal and Moelis & Co., to file for bankruptcy, sources said.

Waiting to file, they said, would only make it harder for the theater chain to regain its footing post-pandemic because of the amount of cash required to stay alive.

AMC has been burning through roughly $125 million a month since March. And while about 500 of its 600 US movie theaters are now open, ticket sales remain suppressed by the pandemic and its social-distancing requirements.

On Oct. 20, AMC warned investors that if it didn’t succeed in raising new money it would run out of cash by the end of the year. By Nov. 2, the stock had fallen to $2.15 — down 70 percent since the start of the year.

Adding to the pressure, AMC first-lien creditors — a group led by Apollo, where Aron once worked — were offering the company a tempting $1 billion loan to keep the company operating in bankruptcy.

The pressure was so intense that Aron agreed to get the bankruptcy paperwork in order even as he pursued other plans, sources said.

“Ninety-nine out of 100 CEOs would have went with their advisers,” a source with direct knowledge of the situation said.

The Apollo loan was problematic for Aron for multiple reasons, sources said — least of which was that he worked for the financial giant as a senior operating partner from 2006 to 2015. By accepting the $1 billion to restructure debt in bankruptcy, he risked being accused by other creditors of handing the company over to his friends. And if that argument prevailed in bankruptcy court, he stood to lose his job.

“He was f—ed,” the person with knowledge of Aron’s dilemma said.

AMC Entertainment CEO Adam Aron in 2019.
AMC Entertainment CEO Adam Aron in 2019.
REUTERS

Aron had also been CEO of Apollo co-founder Josh Harris’ Philadelphia 76ers from 2011 to 2013. Before that, he ran what was often Apollo-controlled ski operator Vail Resorts from 1996 to 2006.

Meanwhile, a much smaller investment bank, B. Riley, had been pitching Aron and his CFO Sean Goodman for months on the idea it could raise money from small investors instead of the institutional investors they had been pitching thus far using Citigroup and Goldman.

B. Riley is not well-known, but it has become a leader in selling shares using an at-the-market equity system, where a company announces plans to sell a certain number of shares without a roadshow. The sale continues until the shares are sold.

“I think given a lot of negative views on the space and that AMC was heavily shorted, it might have been difficult to go to traditional institutional investors,” explained B. Riley senior analyst Eric Wold.

B. Riley in 2020 completed 113 of these ATM sale offerings compared to Goldman’s 38 and Citigroup’s 32, according to Dealogic.

So Aron and Goodman hired B. Riley to work in tandem with Goldman on a new equity offering while Citigroup shifted gears to seeking other sources of bankruptcy funding just in case, sources said.

Goldman and B. Riley started their selling on Nov. 10, selling patiently and as long as the price was above what the company determined an acceptable level, sources said.
“You are not selling $1 billion a day, it’s more like $20 million,” one source explained of the process.

Goldman would take the lead in selling shares one week, and B. Riley the next, the source added, and acted as equal partners.

The process not only saved the company from bankruptcy, it also saved AMC a lot of money. B. Riley and Goldman got paid a combined 2.5 percent of proceeds from the equity sales or $18 million, plus expenses, according to public filings. Apollo’s loan, by contrast, would have cost the company more than $300 million in advisory fees and interest payments, sources said.

And after announcing its $917 million fundraise including debt, AMC raised an additional $305 million via stock sales— or more than it would have gotten in bankruptcy.

AMC’s advisers and lenders, including Apollo, either didn’t return calls or declined to comment.

But Aron got on the phone with The Post to say he was simply determined to save an American tradition.

“AMC is a proud American company with 100 years of heritage,” Aron said. “And moviegoing at our theaters is very much in the psyche of American consumers. In my heart of hearts, I passionately believed that AMC deserves a second century as bright as its first.”

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