MGM creditors request Spyglass vote delay

Ask for an extra week to mull plan; development bolsters Lionsgate rival move on Century City studio.

Lionsgate might just have the Lion by the tail.


Spyglass Entertainment suffered a significant setback Friday when MGM extended to Oct. 29 the deadline for studio creditors to vote on whether to hand the Lion's operating reins to Spyglass co-toppers Gary Barber and Roger Birnbaum. By contrast, the developments bolstered Lionsgate's rival move on the Century City studio.

MGM will give lenders an additional week to vote on the Spyglass plan, which would give the Westwood-based production company a 4.7% stake in the studio and the balance of ownership to more than 100 lenders. The extension means voting will end on the same day MGM is due to pay more than $450 million in long-delayed debt payments.

MGM attributed the extension to lenders' receiving unspecified "supplemental information" on studio finances, but the move has been widely interpreted as giving Lionsgate more time to convince creditors to consider the mini-major's alternate proposal. It is believed that MGM shared details of the Lionsgate proposal with the creditors group.

The studio isn't letting lenders specifically vote on that alternate plan, and so far executives haven't gotten the right to make a formal presentation of plan details to the creditors. But with momentum on its side, the Lionsgate proposal could win by default if lenders vote against adopting the Spyglass plan.

Backed by major shareholders including Carl Icahn and Gordon Crawford's Capital Research, Lionsgate proposes to merge with MGM to form a company in which it would hold a 45% stake and the lenders 55%. The studio's current owners -- including Providence Equity, TPG Capital, Sony, Comcast, DLJ Merchant and Quadrangle -- would see their equity positions wiped out in virtually any restructuring.

Still another scenario would see additional suitors step forward with offers to buy the debt-wracked studio outright. But MGM consultant Moelis & Co. has been unable to woo high enough offers to date.

One way or another, MGM needs to restructure its finances to reduce or eliminate almost $4 billion in debt. Any restructuring likely would culminate in the filing of a prepackaged reorganization plan in U.S. Bankruptcy Court, perhaps within the next few weeks.

Lionsgate's proposal would keep about $400 million on the books as a means of dealing with creditors unable to hold equity and whose debt holdings are "under water." Some of the larger debtholders snapped up MGM debt when it was trading at higher values and thus are opposed to cashing out immediately.

The Spyglass plan would eliminate all MGM debt. Eventually, Barber and Birnbaum would seek new loans for MGM operating capital.

MGM watchers eyed the latest developments in the more than yearlong effort to restructure the studio with almost wry amusement during the weekend. Few will be surprised if still more drama unfolds during the weeks ahead.

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