MGM wins sixth debt extension

Lion's money woes continue to affect 'Hobbit,' Bond projects

MGM again has won more time to put its corporate house in order, but the Lion's money woes continue to hobble "The Hobbit," and the next James Bond pic is cruising along about as well as an Aston Martin without wheels.

In fact, the studio's co-production partner on the 007 franchise has parked the latter project indefinitely, and putative Bond helmer Sam Mendes has moved on to other assignments while MGM management and increasingly restless studio lenders try to figure out how to keep the lights on in the Lion's den.

So however key to MGM's recovery, the Bond pic and "Hobbit" are unlikely to hit multiplexes before late 2012 at the earliest -- and that seems a stretch. For the short term, the Lion will remain on the film production sidelines while issuing the occasional catalog release for the home entertainment market and licensing new video games such as Activision's upcoming "GoldenEye."

But the hard truth is that the MGM film library has been heavily exploited over the years, and only new production will bolster its sagging value.

Some suggest that the Bond rights and 007 catalog should be sold to the highest bidder, along with MGM's half-hold on "Hobbit." But the Bond proposal has proved a nonstarter with a lenders steering committee that's been holding restructuring talks with MGM management.

A similar proposal on "Hobbit" has a better chance of coming to fruition, but a sale of those rights is still a long shot.

Warner Bros. holds the other 50% share of rights to turn the J.R.R. Tolkien novel into a pair of big-screen pics, and New Line topper Toby Emmerich is leading project development. Peter Jackson is on board to direct and has been mulling possible cast choices.

Who will hold pic equity once "Hobbit" hits movie theaters?

"There are 18 different scenarios being discussed," a Warners insider said recently.

Theoretically, one of those possibilities would see Warners buying out MGM's share of the project. But Warners co-topper Alan Horn -- collaborating with Emmerich on project strategy -- is wary of overpaying, and negotiating the value of an unproduced film project would be tough in any case.

A starting point in such negotiations would be to take MGM's projected share of the film's budget and then add an amount on top of that as an inducement for the Lion to sell.

But there's also little way of forcing MGM's hand on the matter until it runs out of cash completely. The Lion's deal with New Line provides that the beleaguered studio will co-finance a project expected to cost upward of $300 million for the two "Hobbit" pics.

Jackson has made it clear he'll bolt the project if an aggressive timetable doesn't emerge -- and soon. But the mere size of the lenders group has made rapid progress on any issue near impossible.

One industryite on the periphery of MGM's restructuring efforts recently complained that dealing with the disparate parties on all sides of the process is "like herding cats."

Said another source close to the process: "It's decision by committee. But everyone on the committee is not on the same page."

Even MGM management is literally speaking with multiple voices, as the studio is being run by an office of the CEO comprising turnaround specialist Stephen Cooper, CFO Bedi Singh and film topper Mary Parent.

"How do you steer the Titanic if there's no captain?" quipped an industry wag in the midst of the chaos.

On the lenders' side, JP Morgan vets John Miller and Alan Levine are leading the steering committee, which also is getting advice from Houlihan Lokey's Chris Wilson and Andrew Walter.

Meanwhile, the bigger-picture search for a new MGM business plan continues.

The Century City studio said Wednesday that its debtholders had agreed to give MGM until Sept. 15 to make the debt payments, extending a previous forbearance pact that was set to expire at day's end. Strapped with almost $4 billion in debt, the Lion is stalking ways and means of shaping a corporate restructuring that can sort out its fiscal affairs while setting the studio's future course.

Any restructuring likely would turn much of the debt into lender equity, but MGM also hopes to tap new sources of capital. The debt extension pushes off a $250 million principal payment and more than $200 million in owed interest while the studio management and current owners continue to work on details of any restructuring plan.

Of its latest forbearance agreement, MGM said: "The lenders took this action in support of the company's ongoing efforts to evaluate long-term strategic alternatives to maximize value for its stakeholders. MGM appreciates the continued support of its lender group throughout this process."

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

The steering committee representing a broader group of more than 100 lenders has been working with management in consulting a host of Hollywood execs on various restructuring options. But after having to give a sixth debt extension, many in the broader lenders group are wondering when an actual plan will emerge.

Meetings with prospective restructuring partners continued through Tuesday, when Lionsgate reps discussed a proposal with an MGM contingent.

Summit Entertainment, Spyglass and others also continue to circle the situation with their own ideas about how to patch up the ailing Lion. Before the restructuring talks, MGM had solicited bids for buying the company outright, but a top bid of $1.5 billion by Warners was deemed too low.
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