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MGM

6/21/10 - Spyglass Entertainment has emerged as the leading contender to run MGM as the beleaguered film studio races to restructure a roughly $4 billion debt load this summer.

Spyglass co-heads Gary Barber and Roger Birnbaum would run the studio as co-chief executives under a plan being discussed with MGM's creditors.

Talks are continuing and no final decisions have been made. Summit Entertainment, the studio behind the "Twilight" vampire-film franchise, also has been in discussions with MGM and its creditors, and remains a candidate to run the company.

Any deal would be executed in a "prepackaged" bankruptcy, in which a company lines up approval from many creditors in advance, with an eye toward spending less than two months in court proceedings.

Under the restructuring plan, creditors would swap their debt for nearly all the equity in a restructured film studio.

The uncertainty around MGM's future has wreaked havoc on its production plans. The next Bond movie has been put on indefinite hold. The director of two coming "Hobbit" films—potential blockbuster prequels to the "Lord of the Rings" trilogy—just resigned, citing MGM's restructuring woes.

5/7/10 - Access Industries, billionaire Len Blavatnik's holding company, has dropped out of the auction for MGM as the studio's creditors meet with Hollywood experts to conduct due diligence on a standalone plan. The lenders' steering committee, led by JPMorgan Chase, Highland Capital Management and Anchorage Advisors, is consulting several Hollywood experts for advice on their plan, and has met with former News Corp President Peter Chernin.

Representatives of the committee have also had talks with executives at Spyglass Entertainment and Overture Films.

The idea of selling MGM, which began exploring options in November, is on hold after bids for the studio were considered to be too low. A standalone plan, which involves filing for a pre-packaged bankruptcy, is now being studied more carefully.

That plan could involve $1 billion in capital, including $500 million in new equity and a mandate to make anywhere between four to 10 movies a year. The details of the plan could change, depending on how the due diligence process goes.

Time Warner, which put in a $1.5 billion bid for MGM in March, remains interested in buying the studio. Lions Gate, which had also bid for the studio, withdrew its offer after MGM told all the bidders that their offers were too low.

A $2.85 billion buyout in 2005 by a group including Providence Equity Partners, TPG, Quadrangle Group DLJ Merchant Banking, Sony and Comcast saddled the company with debt.

3/26/10 - Lions Gate indicated it would drop out of the auction for Metro-Goldwyn-Mayer Inc., leaving only two bidders for the debt-ridden film studio.

Lions Gate bid between $1.3 billion and $1.4 billion for MGM last week. But after MGM indicated that it found the offer insufficient and was preparing to ask for a higher bid, Lions Gate decided not to submit another offer.

With Lions Gate out of the picture, the auction is limping along with only two remaining offers: one from Time Warner and another from billionaire Len Blavatnik's Access Industries. Those offers are for $1.5 billion or below, well below the $2 billion or more sought by MGM's bank lenders, whom the 86-year-old studio owes nearly $4 billion.

The main reason the bids have come in so low is that MGM has struggled against a crippling slowdown of the DVD market. That has hindered the cash flow it receives from its film library, one of the company's most valuable assets along with the James Bond franchise. The library generated more than $460 million in cash in 2008 from the sale of licenses for DVDs and TV deals, according to people familiar with the situation. But it is now generating roughly $280 million a year, a figure that will likely fall to about $220 million in 2012.

Six companies were originally considering bids for the debt-laden studio, including Liberty Media and New York hedge-fund Elliot Management, a big investor in film-production company Relativity Media.

Lions Gate's decision to back out of the MGM auction was unrelated to recent events involving activist investor Carl Icahn, who has offered to buy all of the Lions Gate shares he doesn't currently own for $6 apiece. Icahn, who currently owns nearly 19% of the company, explained his tender offer in part by saying he wanted influence over any acquisitions that Lions Gate could make, including MGM.

MGM's creditors put the studio on the block in November. But they have also been preparing for the possibility of a busted auction if potential buyers fail to raise their bids. The studio could pursue a standalone plan in which its lenders would convert their debt to equity and sell that equity to another investor. Any such restructuring would likely be completed through a streamlined bankruptcy with advance approval in place from creditors.

MGM and its creditors are jockeying for leverage with suitors. Hedge funds controlling large pieces of the studio's bank debt signaled their willingness to pursue a standalone plan rather than settle for one of the current offers.

But Lions Gate's move suggests that the suitors aren't inclined to negotiate much beyond their initial offers, leaving MGM's creditors to choose between a lowball price or trying to nurse the studio back to health on their own. The studio's creditors are dominated by hedge funds, many of which bought their debt at around 60 cents on the dollar and believe the studio to be worth well above $2 billion, closer to $3 billion. Selling for the current offers on the table would lock in losses for many creditors, which they deem unacceptable.

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'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.