Private equity firm Silver Lake did it this week like a bandit by hitching a ride on the stock market frenzy stirred up by users of a Reddit message board in recent weeks.
Silver Lake was able to release a profit of about $ 112 million on Wednesday by selling 44.4 million newly minted shares of AMC Entertainment Holdings Inc.
into a red-hot market for the company’s stock, according to a filing Friday with the Securities and Exchange Commission.
The Menlo Park, California-based private equity firm earned its windfall after individual traders, who banded together on an online trading forum, drastically inflated the price of AMC shares, along with GameStop Corp. GME,
and a group of other companies that had become popular targets for professional short sellers.
Read: Trading AMC Stock Could Prevent Bankruptcy, But Cinema Operator Faces Recovery For Years Yet
Silver Lake secured its new shares on Wednesday by converting about $ 600 million in AMC debt it owned, which was issued in July, into equity as the movie chain rushed to borrow to support funding as theaters largely closed and at $ 4 a share, according to FactSet data.
By selling the new stock on Wednesday, the same day it converted the debt, Silver Lake avoided a major stock drop on Thursday as mobile trading app Robinhood excludes users from some trading in shares of AMC and other companies.
Companies are issuing convertible debt as a way to raise money, even when the ‘strike’ or conversion price to equity seems far out of reach. AMC had $ 3 billion worth of convertible bonds outstanding on Friday, with a significant portion at a strike price of $ 18.95, FactSet said.
ReadWall Street Seeks Ways To Avoid Rush Of Reddit Day Traders As A ‘Force To Be Reckoned With’
The recent short-squeeze battle has been designed as a pit between Wall Street and Main Street at a time when the pandemic has exacerbated the gap between rich and poor in America, and trillions of dollars in fiscal and monetary stimulus has been pushed through the financial markets. But Silver Lake’s score underscores how big, professional players are making big profits on the same Wall Street bets as day traders.
Read: The GameStop and AMC drama doesn’t stop at the stock market
“What would you expect from them?” said Marty Fridson, chief investment officer at Lehmann Livian Fridson Advisors, referring to the major institutional players seizing recent speculative stock prices. “It’s not that the big financial players feel a sense of solidarity.”
“To me, the whole ‘populist’ thing is really a side show,” said Fridson, a veteran of the “junk bond,” or high-yield market.
See: GameStop frenzy spotlights clearing houses as investors weigh fears of systemic risk
AMC closed 53.7% higher at $ 13.26 a share on Friday and is up 525.5% so far over the year, according to FactSet data.
The broader stock market slipped Friday, with the Dow Jones Industrial Average DJIA, S&P 500 index SPX and Nasdaq Composite Index COMP each posting a weekly decline of more than 3% amid volatility in a handful of high-profile stocks.
Silver Lake did not respond to the request for comment on Friday.