June 30, 2021

Public Offerings: Distressed Companies Eye Meme Stock Crowd

Several companies facing hard times have decided that the key takeaway from the meme stock phenomenon is that no business headwinds are strong enough to deter meme stock “apes” in search of their “tendies”.  Here’s an excerpt from a recent WSJ article:

The frenzied stock-buying activity that may have saved AMC Entertainment Holdings Inc. from bankruptcy is opening up a potential escape hatch for other troubled borrowers as well.

More companies with steep financial challenges are seeking a lifeline from equity markets, eager to capitalize on the surge of interest in stock buying from nonprofessional investors. Earlier this month, coal miner Peabody Energy Corp., offshore drilling contractor Transocean Ltd. and retailer Express Inc., all announced plans to sell stock, betting equity markets will support them despite heavy debt loads, recent losses and industry headwinds.

Selling stock isn’t the typical way for distressed companies to grab a lifeline. More often, they are forced to seek out rescue loans, sell off assets or pursue a merger, which can be difficult because of their existing debt. But equity markets now are more open to supporting troubled issuers, in large part because of risk-hungry individual investors eager to speculate, according to bankers and investors following the trend.

The companies identified in the article aren’t planning firm commitment underwritings. Instead, these companies – like AMC and other meme stocks – are planning to tap the market through ATM offerings. It will be interesting to see if this gambit works, but even after months of meme stock nuttiness, I have my doubts.  Most of the meme stocks seem to have gained that status because of buzz generated on social media, and that’s hard for companies to gin up on their own.

Hey, I’ve got an idea – maybe instead of road shows, their CEOs could start giving interviews to YouTube personalities without wearing pants? You know – sort of a “sans-culottes for the sans-culottes” marketing strategy. I mean, it’s worked before , . .

John Jenkins