MGM buyer sure to seek bankruptcy plan

Prepackaged filing would wipe away debt balance

With MGM drawing first-round offers of less than $2 billion, it's clear that any company buying the studio will demand that the Lion first submit a prepackaged bankruptcy filing.

That will be needed to keep debt and other liabilities from carrying over to a new owner of the studio. With 140 lenders looking for a payout on $3.7 billion in debt, no buyer will want to cover the balance.

"A prepackaged bankruptcy would cleanse the asset," a lenders-side source said. "That way, it won't matter if some of the lenders don't want to go along with the sale."

In addition to freeing new owners of lingering lender liabilities, a prepackaged bankruptcy likely would wipe clean unwanted obligations with studio vendors and some film producers.

Seven of 12 companies participating in an initial round of financial due diligence have fielded offers for MGM. Fox parent News Corp. got started late in its review of the Lion's books and is expected to join the bidding eventually.

Time Warner and Lionsgate are considered among the more credible first-round bidders, with the latter placing a $1.5 billion offer. Details of a bid to pair MGM with Warner Bros. under the Time Warner umbrella have yet to come to light.

Bidders weren't allowed to cherry-pick studio assets in making offers, and that's also the plan for a second round of bidding set to begin in the next couple of weeks. However, bidders will be allowed to bid only for a certain percentage of the company's equity.

Lion owners include Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle.

First-round bidders will learn next week if they have been invited to the second round. Those advancing will gain access to more financial data about the studio.

The additional due diligence is expected to take more than a week.
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