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MGM's creditors near choice on partner

20-May-2010 • Bond News

Metro-Goldwyn-Mayer Inc.'s creditors are nearing a choice on a possible strategic partner, a move that could break the logjam over how to resolve the studio's crippling $4 billion debt load, reports the WSJ.

The creditors' current plans would replace at least some of MGM's top executives, according to several people familiar with the matter, though they added no final decisions have been made.

The creditors, led by J.P. Morgan Chase & Co. and hedge-funds Anchorage Advisors and Highland Capital Management, have had discussions with a handful of Hollywood executives about running MGM in exchange for an equity stake in the iconic film studio, these people said.

Those having discussions with MGM's creditors include Summit Entertainment, Spyglass Entertainment and former Yahoo Inc. executive Terry Semel, these people said. The creditors have also spoken with former News Corp. executive Peter Chernin, although people close to the mogul say he isn't interested in running MGM.

Choosing a strategic partner to run MGM would likely lead to a reshuffling of the studio's top ranks, including Mary Parent, ostensibly MGM's top executive. She shares a new "Office of the CEO" with turnaround specialist Stephen Cooper, who was brought on by MGM's owners in August to help restructure the studio. He's expected to leave once MGM's restructuring is finished.

Creditors believe that a partner with expertise in the entertainment industry can help MGM produce a new slate of movies that could then breathe new life into its film library—its most valuable asset. MGM told creditors it needs $1 billion in fresh capital for new films, but the lenders haven't signed on to that proposal and are still mulling how much new money, if any, the studio needs and how to raise it. A strategic partner wouldn't necessarily provide new money, people familiar with the matter said.

The discussions, while serious, remain fluid, these people said. None of the potential partners has committed financing for MGM.

MGM declined to comment.

Private-equity firm Cerberus Capital Management owns Spyglass, which cofinanced recent hits "Star Trek" and "G. I. Joe." Summit, the studio behind the lucrative"Twilight" vampire franchise, is backed by private-equity firms in addition to other investors.

MGM's creditors plan to meet with studio management soon to quiz them on different plans proffered by the possible partners, said a person familiar with the situation.

MGM received a waiver on debt payments from creditors until July 14, its fifth reprieve since November. A recent auction failed to produce bids high enough to placate MGM's creditors, many of whom want to recoup more than $2 billion.

MGM is still exploring a roughly $1.5 billion bid from Time Warner Inc., but MGM's creditors have signaled they're no longer interested in parting with the studio.

The creditors now plan to take over MGM through a debt-for-equity swap, most likely through a streamlined bankruptcy process that would garner approval from many creditors before a court filing.

While numerous details of the creditors' plans remain uncertain, their leading scenario involves bringing aboard a strategic partner to run the studio and receive an equity stake, one of the people familiar with the situation said. The creditors would own the rest of the studio after converting some or all of their debt to equity. The new partner could produce, market and distribute MGM's films, said the person familiar with the situation.

However, they still need to raise fresh funds. "Some capital has to be put up by somebody," said a person familiar with the situation.

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