(Bloomberg) — Even before Reddit day traders pushed AMC Entertainment Holdings Inc.’s stock up 1,400% this year, Jason Mudrick had been telling the company it should take advantage of the wild rally by selling stock to stay in business.

Now Mudrick has helped AMC do just that, effectively bankrolling one of the company’s biggest equity sales by purchasing $230 million of shares — and then promptly dumping them in the open market for a tidy profit. Meanwhile, his firm was telling clients it was selling because AMC was massively overvalued.

The stock sale is the latest head-scratching twist in the saga of a theater chain that was on the verge of bankruptcy just months ago, only to be resurrected by an army of day traders hellbent on defying old-school conventions about what companies are worth.

It’s a win for Mudrick Capital Management, which specializes in distressed companies and has supported AMC with a series of stock and debt deals over the past year. It’s also an unusual role for a fund best known for trading in the debt of troubled companies.

Raising cash through an equity sale to a single holder is relatively rare in U.S. markets. Having the holder flip the stock right after buying it is almost unheard of — usually the buyer is an existing stakeholder trying to send a message of stability to the market. Mudrick’s role in the AMC sale bears a closer resemblance to underwritten public offerings in which a bank syndicate purchases the shares with the specific intent of reselling them to investors.

The involvement of Mudrick “has been pivotal to the survival of AMC over the past year, so it shouldn’t come as a surprise they threw them a bone,” Edward Moya, senior market analyst at Oanda Corp. said in a message. “This was a perfect time to have a capital raise as the retail army of traders were excited AMC was raising money for acquisitions and investments.”

They also apparently ignored Mudrick’s dim view of AMC’s valuation. While the stock stuttered briefly on Tuesday after the news of Mudrick’s sale broke, it still finished up 23% for the day at $32.04.

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That’s more than four times the dismal price the shares fetched at the end of 2019, and that was before anyone was talking about Covid-19 at movie theaters. Back then, the big concern was about losing audiences to streaming services, a threat hasn’t gone away. The last time AMC’s stock closed at a higher level — and just barely — was all the way back in 2017.

Current trading pegs AMC’s market valuation at more than $16 billion, even while the chain carries more than $5 billion of debt and shareholder equity that’s negative by more than $5 a share.

“It is clear that fundamentals don’t support common stock levels at all (which makes sense for the Reddit crowd),” Mark Levin of Asterisk Advisors said in a note.

Bond Trading

Someone nevertheless is making money after this year’s huge rally, including Mudrick’s New York-based investment firm. In addition to acquiring shares, Mudrick Capital profited from buying bonds at a discount and converting part of its stake into equity earlier this year. Just how much he’s ahead depends in part on how much Mudrick Capital got for its newest stake of 8.5 million shares, which were obtained for $27.12 each.

A representative for Mudrick declined to comment, and AMC, based in Leawood, Kansas, didn’t respond to requests for comment.

The most recent deal with Mudrick “will allow us to be aggressive in going after the most valuable theater assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities,” AMC Chief Executive Officer Adam Aron said in a statement disclosing the share sale.

No Lockup

The company said Tuesday it sold stock to Mudrick with plans to “go on offense” by acquiring theater assets, make strategic investments and cut debt. Unlike some stock sales, the deal with Mudrick didn’t include a minimum holding period. Instead, the shares were “freely tradeable,” meaning Mudrick Capital could sell the stock at any point or in any amount it chose.

The investment firm also benefited earlier this year from buying AMC debt at steep discounts, acquiring second-lien bonds for 7 to 20 cents on the dollar, Bloomberg reported. Those securities rose to about 70 cents in January. The hedge fund also held a position in AMC’s secured debt.

Read More: Mudrick Capital Gains $200 Million on AMC, GameStop Bets

“The market did not believe AMC would be able to get through the downturn — we did,” Mudrick said in an interview in January. “With the rally, they need to start chipping away at their capital structure. AMC should go register more shares, sell as much stock as they possibly can and use the cash to repay debt.”

Day-traders commenting on public forums realize that the investment firm is hardly one their own kind. “Mudrick is definitely not an ape,” said one commenter, using a term Reddit users coined to refer to others who are bullish on so-called meme stocks. “Doesn’t matter in the end because we will recover this dump easily until market close.”

But questions remained around the type of share offering and valuation. With heavy borrowings and double-digit coupons on its existing bonds, “this is not a sustainable amount of debt,” said Matt Zloto, the co-head of U.S. high-yield research at CreditSights. “Depending on the type of acquisition AMC makes, it could be positive, if it grows cash flow and earnings enough.”

(Updates with context on equity sale in fifth paragraph.)

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