AMC slumps as Cineworld's bankruptcy warning spells trouble ahead of APE debut

© Reuters. FILE PHOTO: An AMC theatre is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., January 27, 2021. REUTERS/Carlo Allegri/File Photo

(Reuters) - AMC Entertainment (NYSE:AMC) Holdings' shares tumbled nearly 40% in premarket trading on Monday after UK-based Cineworld's warning of a possible bankruptcy spooked investors ahead of the American cinema chain's preferred stock listing.

AMC's preferred stock will begin trading on the New York Stock Exchange on Monday under the ticker "APE". The shares will have the same voting rights as common stock and trade as a separate security for now, the company said.

"The AMC distribution of "APE" is somewhere between a stock split and a stock dividend," said Rick Meckler, partner at Cherry Lane Investments.

"AMC has been on a very fine balancing act between trying to have enough liquidity to meet its debt and not destroying the stock price until its fundamentals would seem to be lower."

The decline in AMC shares was sparked after Cineworld, which owns Regal cinemas in the United States, warned that it was staring at a possible bankruptcy filing as it struggles to cut debts that soared during the pandemic.

Retail favorite AMC looked set to hit two-month lows at market open if losses hold, after reiterating on Friday a "relatively weak" film slate in the third quarter of 2022.

"A broader change in how previous cinema-goers want to watch the latest hit is a trend unlikely to reverse or get any easier for cinema chains," said Sophie Lund-Yates, analyst at Hargreaves Lansdown

The COVID-19 lockdowns severely impacted the business of cinema operators. However, AMC managed to raise $1.8 billion in 2021, capitalizing on the rally triggered by retail investors' interest in meme stocks, in a sharp contrast to Cineworld's fate.

AMC shares have jumped over 150% since the end of 2019, whereas Cineworld lost about 99% of its share value in the same period.