Judge Approves MGM Bankruptcy Plan
MGM isn't out of the bankruptcy jungle just yet, but a judge has approved the Lion's financial-restructuring plan.
The Chapter 11 reorganization is expected to take effect within two weeks once MGM buttons up a final portion of the bankruptcy process in the wake of its successful confirmation hearing Thursday in New York. In addition to finalizing various court documents, MGM expects by mid-December to arrange $500 million in financing to fund operations of the Century City studio after its exit from bankruptcy court.
The restructuring plan appoints Spyglass Entertainment co-toppers Gary Barber and Roger Birnbaum as co-CEOs of MGM, which filed for "prepackaged" bankruptcy reorganization on Nov. 3. U.S. Bankruptcy Judge Stuart Bernstein ruled on Nov. 12 that no further approval by Lion creditors would be necessary despite several 11th hour tweaks before the plan's filing, and he approved the plan Thursday.
In October, more than 100 MGM lenders agreed to swap their massive debt holdings for a collective 95% stake in the Century City studio. But final terms of the plan as filed contained certain changes demanded by investor Carl Icahn, who owns the largest chunk of MGM debt at 18%.
As a result, Icahn and other debtholders will acquire a collective 99% ownership hold on the studio. One of the changes demanded by Icahn was the removal of a 15-film Spyglass library from the deal.
Spyglass will get the other 1% sliver of MGM equity instead of 5%, as stipulated in the original terms. The Westwood-based production company is owned by New York City hedge fund Cerberus Capital Management.
Members of MGM's previous ownership consortium -- Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle -- will see their positions wiped out in the reorganization.
Sony and Comcast enjoyed operational synergies since buying into MGM in 2004, and they exit the experience relatively unscathed. But Providence and the other investment firms in the consortium have lost hundreds of millions of dollars participating in the $4.7 billion transaction because of the precipitous decline in the value of MGM's massive film library as consumers lost interest in buying DVDs.
Barber and Birnbaum plan on making just a handful of films each year, reducing production capacity and eliminating distribution operations. They have retained J.P. Morgan Chase to line up operational funding, and several members of the current lenders group already have signaled their intent to participate in the loan syndication.
Once grabbing the MGM reins, Barber and Birnbaum will tackle key movie projects including the next James Bond film and two pics based on The Hobbit, in which MGM holds a 50-50 interest with Warner Bros.
Today's ruling is an important milestone for MGM," said Stephen Cooper, a corporate turnaround specialist who for now remains a co-chief of the studio. "Thanks to the support of our lenders and the hard work of our employees, we have moved through the restructuring process quickly."
Expected to leave once the reorganization is finalized, Cooper was one of the three execs running MGM during the past several months. Film chief Mary Parent and CFO Bedi Singh already have exited.
For more than a year, MGM sought ways of dealing with a crushing $4 billion debt load, at one point pursuing the outright sale of the studio but attracting insufficient interest. MGM said Thursday that owed interest and fees have swollen the debt to $5 billion.
"By dramatically reducing MGM's debt load and providing MGM with access to new capital, the reorganization plan the court confirmed today will enable MGM to emerge from this process with a solid financial foundation and will position MGM to be a successful studio going forward," Cooper said.