MGM passes audit

Court-supervised reorganization unlikely

MGM has passed its annual audit.

That's the expected good news, delivered by the Century City-based studio on Wednesday. An unfortunate related update is that a J.P. Morgan-led creditors committee appears unmollified by the announcement.

There was never considered a sizeable risk that the audit would result in a warning being issued about MGM's viability as a "going concern." But the mere theoretical chance of that happening shook creditors, who then hired investment consultancy Houlihan Lokey to advise on possible strategies for dealing with the situation.

Fortunately for MGM, the successful conclusion of its audit means the creditors would be hard-pressed to force a court-supervised reorganization of the studio. It appears the more than 140 lenders comprising the creditors group can only jawbone about their concerns for the time being.

MGM, which is owned by a consortium of private equity firms, Sony and Comcast, also has been mulling how to restructure its finances. One big concern involves the April expiration of MGM's credit facility at J.P. Morgan.

MGM didn't mention a recent re-valuation of its film library conducted by Bank of Montreal. But the results of that new valuation will bear directly on any discussions the studio has with prospective new financial partners in the future.

Word among financial community sources was that the semi-annual library valuation came in considerably lower than MGM's previous estimate but at a level that allows them to continue to operate under the current debt facility.

"MGM is in full compliance with all of its debt covenants," the studio said.

MGM bears more than $4 billion in debt, and public trading in Lion debt instruments has been active. It's believed that famed corporate raider Carl Icahn has been quietly buying debt derivatives instead of debt, because he's not approved by creditors to acquire actual debt.

The Lion's upcoming film releases include "Fame," a co-production with Lakeshore Entertainment set for release on Sept. 25, as well pics scheduled for release next year including the horror thriller "The Cabin in the Woods," the John Cusack comedy "Hot Tub Time Machine" and the Kevin James laugher "The Zookeeper."
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