MGM Studio's lenders said to plan vote on debt restructuring, bankruptcy
Metro-Goldwyn-Mayer Inc. creditors will be asked to approve a restructuring and pre-packaged bankruptcy plan for the studio within the next week or two, according to two people with knowledge of the situation, reports Bloomberg
Under the plan, MGM would file for Chapter 11 bankruptcy after obtaining creditor approval, with the goal of emerging from court protection by the end of the year, said one of the people, who asked not to be named because the details arenât public. Susie Arons, an MGM spokeswoman, declined to comment.
The studio, which has $3.7 billion in debt and is nearing the end of a sixth forbearance agreement, would hand over management to Spyglass Entertainment Groupâs Gary Barber and Roger Birnbaum, the people said. Spyglass signed a non-binding letter of intent on Sept. 8, according to the people.
As part of a restructuring in bankruptcy, creditors would exchange their debt for equity. Spyglass owners would receive 5 percent of the merged company for their film library, which has been valued at about $100 million, according to one of the people, who has seen the proposed agreement. The studioâs latest forbearance agreement expires on Sept. 15.
Spyglass, a Los Angeles-based production company, is the producer of âThe Sixth Senseâ and âG.I. Joe: The Rise of Cobra,â and owns a library with interests in 45 films, according to its website. Spyglass didnât respond to request for comment today.
MGM, also based in Los Angeles, is preparing for a conference call with lenders that would precede an e-mail vote among the more than 100 creditors, one of the people said.
The restructuring plan also would allow closely held MGM to seek a line of credit to fund its operations and avoid having to raise additional equity beyond what would be created through the debt swap, said one of the people, who has taken part in the discussions. The studio was taken private for $5 billion in 2005 by investors including Providence Equity Partners.
Metro-Goldwyn-Mayerâs primary assets are its library of 4,100 films and a 19 percent stake in the Epix pay television channel co-owned with Viacom Inc. and Lions Gate Entertainment Corp. MGM values the stake at about $95 million, following an Aug. 10 agreement with Netflix Inc., one of the people said.
Under that accord, Netflix will pay $200 million over the next five years to give its subscribers Web streaming access to the pay channelâs movies and TV shows.
MGM also shares film rights to the James Bond movies and J.R.R. Tolkienâs âThe Hobbit.â MGM is considering hiring another studio to handle distribution of its films to theaters, one of the people said. News Corp.âs Twentieth Century Fox already distributes its DVDs.
Under the restructuring plan, Spyglassâs Barber and Birnbaum would become co-chairmen and co-chief executives, the people said.
Ken Schapiro, of the New York-based private equity firm Qualia Capital, is in talks to become chief operating officer of MGM, one person said. Qualia made a restructuring proposal for MGM this year that included a $500 million equity infusion.
Paul Pflug, a spokesman for Qualia, said neither the company nor Schapiro would comment.
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