MGM bankruptcy: inside the courtroom drama
MGM Studiosâ dramatic restructuring is nearly done, with the âLion,â as the company is known in Hollywood, finally in bankruptcy court. Today, Jay Goffman, a restructuring guru representing MGM, stood before a judge to deliver the epilogue sprinkled with the kind of drama (and a little comic relief) usually poured into a silver screen blockbuster, reports the Wall Street Journal
MGMâs restructuring culminated in a âprepackagedâ bankruptcy approved by nearly all creditors in advance. Companies need creditors holding roughly two-thirds of the studioâs debt and more than half of individual debt holders to vote in favor of a reorganization plan to get it blessed by a judge.
By last Friday evening, MGM had about 80% on both scores, Goffman said today. After placating activist investor and MGM creditor Carl Icahn, the studio had approval from nearly all creditors. Including accrued interest, lenders are forgiving about $5 billion in debt in exchange for ownership stakes in the studio, said Goffman, from law firm Skadden, Arps, Slate, Meagher & Flom.
Goffman began with fawning praise for all who worked on MGMâs restructuring. âLike any great drama, there are lots of other players,â he said. He introduced at least a dozen lawyers, bankers and other restructuring types in a style typically reserved for the Yankees opening day lineup. âIâve never had a restructuring where people worked better together, more cohesively,â Goffman intoned.
Goffman saved his most detailed praise for Stephen Cooper, the turnaround specialist who served as a top MGM executive the past year-and-a-half. Goffman told Judge Stuart Bernstein that Cooper had worked on Enron, LyondellBasell and Krispy Kreme before the judge interjected.
âBefore, or after they went into bankruptcy?â the judge asked, to courtroom laughter.
âAfter,â Goffman said, clarifying that Cooper typically oversees companies going through restructurings as opposed to being the executive at the helm as the firm deteriorates.
With that, Goffman launched into the narrative of what beset MGM. Weâve detailed most of MGMâs travails in the pages of the WSJ. But Goffman added some color to the negotiations to save the storied studioââmaybe the most iconic in history,â Goffman said, noting its more than 200 Academy Awards and rights to the âJames Bondâ film series. âThereâs been a lot of intriguing drama over the past few weeks.â
Most know MGMâs 2005 leveraged buyout went sour and the studio couldnât repay debt amid plunging DVD sales, nor make enough new hits to make those older films more attractive to customers. At the time of the LBO âeveryone had high hopes for the future,â Goffman said. But â cue dramatic music â the DVD market tanked. (Lightning, cue strings) The recession hit. And the movies sometimes stunk. âWe didnât have great luck with certain motion picture releases,â Goffman admitted. (Please see: Time Machine, Hot Tub.)
An attempt to sell the studio flopped. So weâll skip to the late-stage drama between MGM, Lions Gate and Icahn, as relayed by Goffman, who noted to the judge that much of MGMâs troubles had been covered âin the newspapers.â
MGM over the summer settled on Spyglass founders Gary Barber and Roger Birnbaum to take over management of the studio and merge some older films with MGMâs library. Lions Gate made a merger proposal, but Icahn, Lions Gateâs largest shareholder, had publicly denounced the idea of such a merger and said he would litigate such a deal. He was also suing Lions Gate execs in the meantime. For those reasons, Goffman said, MGMâs most influential creditorsâincluding J.P. Morgan, and hedge funds Anchorage and Highlandâstayed away from a Lions Gate deal.
Fast forward to the fall. Lions Gate again made an offer to merge with MGM. But MGM asked the rival to provide assurance in writing that Icahn would support such a deal. âThey were not able to do that, so those discussions did not proceed,â Goffman said.
But Icahn was plotting behind the scenes and soon relayed that he held more than $400 million of MGMâs debt and wanted the studio to scrap its plans with Spyglass for the very Lions Gate merger he had once denounced. MGMâs creditors balked and Icahn proceeded to make several offers to buy out other creditors to block the Spyglass plan. âHeâs not a man easily deterred,â Goffman said.
But the offers didnât gain traction. âIâm happy to tell you, Your Honor, all of those failed,â Goffman said. Icahn remained essentially the only holdout and MGM had the votes to go ahead with its prepackaged bankruptcy. Still, Goffman wanted to bring âa fully consensual planâ before Judge Bernstein. So MGMâs creditors and others negotiated with Icahn and made some tweaks to the deal, which weâve detailed before.
With the changes, Icahn agreed to vote for the plan, meaning just about every creditor was on board. âFortunately for all of us, Mr. Icahn wasnât successful,â Goffman said, referring to his attempts to scuttle MGMâs restructuring plans.
Goffman also said he was âeternally gratefulâ to Providence, TPG and other former MGM equity owners for agreeing to get wiped out and not putting up too much of a fuss. Goffman said he was âgratefulâ or âprivilegedâ a lot â- words you donât typically hear thrown around in bankruptcy.
The judge approved just about all of MGMâs routine first-day motions to keep paying employees and others. A hearing to confirm MGMâs reorganization plan and send it on the path to exit bankruptcy is scheduled for Dec. 2 â less than a month from now.
âThis story couldnât be more fitting for an Academy-Award winning picture,â Goffman told the judge.
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