Lender streamlining could help MGM's cause

Small group wields substantial control over studio's future

The recent consolidation of MGM debt into a fewer number of individual lenders could make the cumbersome task of restructuring the studio more manageable.

Buying on the public market, about a half-dozen lenders have accumulated more than 51% of Lion debt. That means a relatively small group wields substantial control over decisions looming large in the Century City studio's future.

The three biggest debtholders are Anchorage Advisors, Highland Capital and Davidson Kempner. Their reps are among those attending a meeting of a lenders steering committee that J.P. Morgan led Thursday as well as one set for today in Los Angeles.

Like a previous meeting of the steering committee, lenders are attempting to educate themselves about how MGM operates and how the studio might restructure finances and operations to compete in Hollywood on firmer footing. But instead of management presentations, which took up much of the previous meeting of Lion lenders, the committee is hearing from Hollywood notables outside the studio.

The names of former industry executives including Jonathan Dolgen and Peter Chernin have circulated as possible candidates to run MGM. But for now, such Holly¬wood VIPs are being consulted for advice on the studio's restructuring options.

On the other hand, turnaround specialist Stephen Cooper eventually will segue out of his role as MGM CEO and move on to the next corporate crisis in another industry. So those cozying up to the lenders committee as consultants could resurface in operating roles.

Spyglass principals Gary Barber and Roger Birnbaum also are among those held in high regard for their business prowess, and a key lenders-group insider has touted the duo as potential full-time Lion keepers following a restructuring.

For much of the past year, MGM has grappled with a range of tough choices as it struggles under a crushing $3.7 billion debt load. The Lion has until May 14 to make a $200 million-plus interest payment on its debt as well as a $250 million principal payment.

Studio management has been huddling with a J.P. Morgan-led lenders steering committee on how to pump some capital into the Lion before then. To do that, a debt restructuring likely would shift most studio equity from current owners to the lenders group.

That's assuming Time Warner or others participating in a recent auction of the studio decide against upping their bids, which were deemed too low to accept. Offers came in at $1.5 billion or lower, and MGM lenders -- who must approve any sale of the studio -- likely would nix anything substantially below $2 billion.

At least that was the thinking when there were more than 140 debt holders in the mix, with a substantial minority stridently opposed to approving anything less than the current market value of MGM's tradeable public debt. Yet the debt recently has been trading at less than 50 cents on the dollar, suggesting a sub-$2 billion valuation.

Now that the number of lenders has been whittled down substantially, there's a greater chance that Cooper will win a consensus for some sort of reorganization plan. And that's assuming lenders don't conspire among themselves to force an a la carte sale of MGM's choicest assets such as the James Bond film rights, yet another of the possible outcomes to the studio's months-long financial crisis.

A handful of companies including Qualia Capital, Access Industries, News Corp. and Time Warner have agreed to lend MGM upward of $500 million in new equity capital.

The Lion's current ownership group includes Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle.
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