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MGM

3/9/10 - MGM is readying a backup plan should bids for the iconic film studio come in too low. As talks continue--the March 19 deadline for binding offers looms--creditors are increasingly willing to assume control over the studio. Under that scenario, MGM would likely pursue a "standalone" plan in which lenders would convert their debt to equity.

(Note from Jeffrey : This would cause MGM stock price to fall. Ironically, it has been rising over the last several months as investors believe that MGM is undervalued.)

MGM creditors are owed nearly $4 billion, and have for months tried to drum up interest in the 86-year-old studio, which went on the auction block in November. While MGM originally sought offers in the range of $2 billion or more, bidders are signaling they're willing to pay only around $1.5 billion, and possibly less, citing the sagging cash flow from the studio's film library.

MGM's bank debt currently trades around 60 cents, valuing the studio at roughly $2.4 billion —a sum at odds with some suitors' assessments. If creditors opt for the standalone debt-to-equity conversion plan, the company would then sell stock to another investor who could come from among MGM's creditors, including hedge funds.

Warner Brothers studio parent Time Warner and Russian-born industrialist Len Blavatnik, who owns Access Industries, are among MGM's leading suitors. Other companies looking at MGM's books include Liberty Media; Lions Gate and New York hedge-fund Elliott Management.

MGM is working to get a deal done quickly ahead of payment dates on its debt. A leniency agreement on MGM's debt expires March 31, and the studio faces a $250 million revolving credit facility maturing about a week later.

1/11/10 - First-round bids are due in the auction of debt-laden film studio Metro-Goldwyn-Mayer, and nearly a dozen prominent Hollywood and media names have submitted offers.

Among the companies making offers or weighing bids for the storied studio are Time Warner, Lions Gate, News Corp, Summit Entertainment; Liberty Media, CBS; AT&T and Indian conglomerate Reliance Industries. The bids are in the $2 billion range, far below the $3.7 billion MGM owes its bank lenders.

The low offers and MGM's complex capital structure could force the studio to seek protection from its creditors in bankruptcy court, and try to sell itself while in Chapter 11 proceedings.

MGM said in November it would seek a possible sale as it struggled with looming debt payments. The studio faces debts of $3.7 billion stemming from a 2005 buyout and a $250 million revolving credit facility maturing in April.

The auction of MGM has limped along in part due to limited financial and operational disclosures from the studio. In particular, the potential bidders are eager to see more detail about the studio's distribution rights, known as "avails" in Hollywood parlance.

MGM is owned by a group including private-equity firms Providence Equity Partners and TPG and media companies Sony and Comcast, which bought it for $2.85 billion and assumed $2 billion in debt as part of the deal.

MGM released just one film last year, a remake of the 1980s musical "Fame," which underperformed at the box office. The studio's most valuable asset is its film library, which includes some 4,000 titles, including the James Bond and Pink Panther franchises. MGM also owns a piece of the two "Hobbit" films to be produced by "Lord of the Rings" director Peter Jackson.

MGM's library generated more than $450 million in cash in 2008, from the sale of licenses for DVDs and TV deals. But amid a decline in the home-video market, it now generates roughly $280 million a year in cash.

While MGM will likely get many bids, it could still be forced into bankruptcy. Its lender group, led by J.P. Morgan Chase includes some 100 investors, many of them hedge funds.

It could prove difficult to get so many stakeholders to agree to a transaction. But in bankruptcy court, federal law allows companies to force dissident debt holders to go along with a deal so long as a certain number of other creditors agree.