EXCLUSIVE: Spyglass' plan to erase MGM debt

3:22 PM PST 08/18/2010 by Carl DiOrio, AP

$4 billion to be converted into lender equity after restructure

It's the case of the disappearing $4 billion.

The long-awaited final chapter in the MGM restructuring saga will feature a magic act to be staged in U.S. Bankruptcy Court. The trick: making the Lion's massive debt load completely vanish.

MGM's Spyglass Entertainment-led reorganization will feature no further equity investment in the Lion but simply shift all ownership from current owners to a group of 100-plus studio lenders. A loan syndication by a large group of banks eventually would be staged to provide $500 million or so in new operating capital.

That latter element could prove elusive, given current market conditions. But at least some in the lenders group may agree to dig deeper so MGM can progress and prosper; J.P. Morgan leads a steering committee of the studio's largest lenders.

Conventional wisdom has been that the studio would keep about $1 billion in debt on its books after a restructuring and require additional equity investment, even after locking into an arrangement with Spyglass co-toppers Gary Barber and Roger Birnbaum. But with the exec duo in final talks on a deal to combine MGM and Spyglass, a plan has emerged to turn all of MGM debt into lender equity.

As a result, the studio will forego seeking additional equity investment, lest the lenders group see their ownership stakes diluted. Cerberus Capital-owned Spyglass will get almost 5% equity in MGM as part of its deal.

Anchorage, Highland, Davidson Kempner and Solis -- all hedge funds -- hold 35% of MGM's publicly traded debt. A decision to file the restructuring plan as a prepackaged bankruptcy reorg must be approved by 51% of all lenders and a group representing two-thirds of the amount owed.

Current MGM owners include Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle. All likely would see their equity positions in the studio wiped out in a restructuring.

Those working on the MGM restructuring expect to put the plan to a vote by lenders soon after Labor Day, with a bankruptcy filing later next month. A reorganization could be completed by November or December.

The lenders group held a conference call with management and others on Wednesday to hear details of the Spyglass-led reorg plan. But with August vacations preoccupying many in all the relevant camps, progress has been relatively minimal since the Spyglass deal advanced to final negotiations this month.
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