AMC Movie Chain Rebounds From Brink.

FANCY finding a comeback story among this sea son's bankrupt theater companies, shuttered dot-coms and collapsing telecommunications ventures.

AMC Entertainment Inc., the No. 2 North American movie-theater company by revenue, has rebounded from a bleak period nine months ago, when its stock hovered above $1 and its bonds traded for 40 cents on the dollar; The stock closed as high as $14.04 on July 17, and AMC bonds are fetching about 90 cents on the dollar. The Kansas City, Mo.-based concern has even joined the bidding for GC Gas., a bankrupt rival.

It's a remarkable recovery, considering the fact that AMC helped lead its industry to the brink by inventing the 14-plus-screen "megaplex," which touched off a costly building frenzy. Megaplexes proved so successful that they cannibalized attendance at older theaters, including those owned by the megaplex builders themselves.

By AMC's count, 11 other theater chains have sought protection from creditors in bankruptcy court, including No. Loews Cineplex Entertainment Corp. and No. 6 Carmike Cinemas Inc. Lenders are demanding accelrated payment of $1.8 billion from No. 1-ranked Regal Cinemas Inc., which is in default of bank and debt covenants. Regal, acquired in 1998 by buyout companies Kohlberg Krav is Roberts & Co. and Hicks, Muse, Tate & Furst Inc., says it is seeking to restructure and may wind up in bankruptcy court.

AMC, though, has rallied with $250 million in fresh capital from Apollo Management LP, which bought preferred stock in April. The deal marked the first big equity infusion in a theater chain in almost two years, and positions AMC as a potential buyer of distressed competitiors.

Different drummer

It seems that AMC remains happily out step with the rest of the industry, just as it often was during the lifetime of Stanley Durwood, the colorful chairman Who controlled the company until his death two years ago at age 78.

Durwood, the Harvard University-educated son of a traveling tent showman, was an innovator who wanted to make moviegoing a more enticing experience. After taking the helm of a family theater business in 1960, he recruited college graduates to manage his theaters, and introduced features such as cup holders and plush seats.

For decades, Durwood priced admission below most competitors' tickets because he thought the business should be price-sensitive, despite evidence that moviegoers cared more about a film's starting time and theater location

After his death, a younger management team had jacked up prices. Then last month, AMC began testing a monthly movie pass in two cities, designed to build brand loyalty to the AMC marquee. For $14.50 a month in Oklahoma City, and $17.50 in Omaha, Neb., moviegoers can see at least one movie a day. "It's a very 'Stan' thing," agrees AMC spokesman Richard King.

Durwood held on to 67.5 percent of AMC's voting stock, even after he gave shares to his six grown children in 1997. He left his voting shares in a trust that won't terminate until 2030. The trustees - two longtime friends - evidently welcomed Apollo's proposal to invest in April.

If Apollo's preferred shares were converted to common, the investment group would own 60 percent of AMC's equity. But if Apollo converts any of its preferred stock, it is required to sell the resulting common shares as part of a five-year standstill agreement.

Nonetheless, Apollo's consent is now required before AMC can acquire or dispose of any significant assets, take on additional debt or change the size of its board. Three Apollo executives - including founder Leon Black, who headed mergers and acquisitions for Drexel Burnham Lambert Inc. in the late '80s - joined AMC's board.

Bargain shopping

With the Apollo investment, Chairman and Chief Executive Peter Brown says AMC has the financial wherewithal to shop selectively for acquisitions.

On July 11, the company offered $62.5 million for GC, parent of General Cinemas Theaters, which filed for Chapter 11 bankruptcy protection in October. AMC's bid topped a previous offer of $42.5 million from Canada's Onex Corp. and Oaktree Capital Management LLC of Los Angeles.

The bankruptcy court in Delaware has agreed to give General Cinema and its creditors more time to solicit bids and propose recovery plans.

Many of the troubled movie-theater companies sought the protection of bankruptcy court in order to shed long-term leases of theaters that lost moviegoers to newer megaplexes.

Staying out of bankruptcy, ironically, threatened to put AMC at a disadvantage with competitors who will emerge from court with reduced debt loads and canceled leases on their unprofitable theaters. That was one reason the company said it sought the Apollo investment to strengthen its balance sheet and give it greater flexibility.

Kathryn Harris is a columnist with Bloomberg News.