BusinessWeek – Billionaire Len Blavatnik offered a plan to reduce Metro-Goldwyn-Mayer Inc.’s debt and provide cash for film production, according to a person with knowledge of the situation, as creditors weigh bids to acquire the studio.
Blavatnik’s Access Industries, based in New York, would keep MGM operating while cutting the almost $4 billion the studio owes, said the person, who sought anonymity because the talks are private. The person declined to provide specifics.
Access Industries and rivals Time Warner Inc. and Lions Gate Entertainment Corp. are competing to win over creditors who may propose their own restructuring as their loans drop in value. Time Warner has offered $1.5 billion, a person with knowledge of the auction said this week. Los Angeles-based MGM asked creditors on a conference call today to extend a debt moratorium from March 31 to May 14, two people said.
“Given the trading levels, it’s logical that the lenders would be unhappy with the bids and would be exploring other options such as restructuring,” said Clark Hallren, managing partner at the Los Angeles-based advisory firm Clear Scope Partners and a former banker with JPMorgan Chase & Co.
After today’s call, MGM’s $3.7 billion term loans traded at about 49 cents on the dollar, said other people who declined to be identified because the trades are private. The loan fell to 48.1875 cents around 4 p.m. in New York, the people said.
The price drop suggests debt holders expect to recover less than $1.8 billion.
‘Have to Decide’
“The bank debt is trading at a significant premium over where I think, at least according to the press, where the offers came in,” Michael Burns, Lions Gate’s vice chairman, said today on CNBC. “They’ll have to decide what they want to do.”
Susie Arons, an outside spokeswoman for MGM, declined to comment, as did Michael Sitrick, a spokesman for Blavatnik. Justin Perras, a spokesman for JPMorgan, which is administrative agent on the loan, also declined to comment.
MGM, distributor of the James Bond films, put itself up for sale last year after failing to make interest payments on the debt. The studio owns a 4,100-title library and has a co- production deal with Warner Bros. for movies based on J.R.R. Tolkien’s novel The Hobbit.
The studio was taken private for $5 billion in 2005 by buyers including Providence Equity Partners.
Time Warner, the New York-based owner of Warner Bros., fell 4 cents to $31.25 at 4:15 p.m. in New York Stock Exchange composite trading. Lions Gate, the independent studio run from Santa Monica, California, gained 26 cents to $6.25.
Carl Icahn, Lions Gate’s second-largest shareholder, has made a hostile offer to buy the company for $6 a share and is opposed to its interest in MGM.
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