MGM State of Financial Health

[DB7878]

It's too bad we can't fast forward to the pretty lights....

The bidding process for MGM has now entered the next phase with about 6 bidders including Time Warner and Lionsgate.

The studio indicated that it's nowhere near concluding those efforts, which include allowing qualified bidders the opportunity to go over MGM's internal financials. A spokeswoman said Friday that the second round should take several more weeks for "due diligence."

http://www.variety.com/article/VR111801 ... =1957&cs=1

[DB7878]

And in what is probably not a vote of confidence in this bidding process MGM outstanding debt is now trading at a bit below 59¢ on the dollar.

[DB7878]

MGM's Price May Be Right For Jeff Bewkes
By NIKKI FINKE | Category: Uncategorized | Friday February 12, 2010 @ 1:31am

Insiders keep telling me that MGM "is Time Warner's to lose" given current bids...

http://www.deadline.com/hollywood/mgms- ... ff-bewkes/

[DB7878]

Edward Jay Epstein got a hold of some inside information explaining better why MGM is in such difficulties.

The bids are coming in low enough to give the original lenders indigestion. MGM's revenue stream collapsed for two reasons. One is that the original buyers and lenders believed that the coming of the new Blu-ray format would stimulate renewed sales of MGM's movie and TV libraries as people paid up to upgrade their old DVD libraries. This isn't happening in part because of the second reason - all DVD and Blu-Ray sales are being hurt by Netflix and internet downloading sources.

The result is that MGM's revenues from DVD and Blu-Ray have dropped from almost $400 mil in 2007 to about $70 mil in 2009.

MGM also gets impressive revenues from their licensing TV library and this is holding up - about $530 mil in 2009 - but these gross revenues have to be shared with talent and others with claims - totaling about $235 mil in 2009. And, then there are other expenses related to these revenue streams - $33 mil.

When all is said and done MGM had net negative operating cash flow amounting to $52 mil for 2009. Given the collapse of DVD/Blu-Ray revenues, expenses and claims on licensing fees, and their inability to fund and make new movies/TV shows, MGM cannot pay down their debt of $3.7 bil, and the original lenders are going to realize a major loss (original owners have lost their investment already).

For our purposes/goals this is not all bad news at all. To oversimplify here, we are going to witness a fire sale of a very big mixed bag of assets (including the Dead Like Me franchise), that the new owner will have bought at very low prices. Either the new owner will sell the DLM franchise or keep it - either way the starting cost for the final new owner will be low meaning any restarting (a new movie or even a new series) will cost less and have an easier time making a profit.

Here's the link to the article:
http://defamer.gawker.com/5475923/the-s ... e=true&s=i

[DB7878]

MGM sets deadline for updated bids
Six companies invited to participate in second-round bidding
By Carl DiOrio
March 8, 2010, 11:00 PM ET
As many as a half-dozen companies are expected to place updated offers for MGM by March 19, the newly set deadline on second-round bidding for the beleaguered Lion.

That's only because six companies were invited to the latest round of due diligence, including management presentations of MGM financial data. It's an open question how many will be inspired to put their money where their curiosity is.

Those still involved appear disheartened by the data they are seeing.

"The deeper you dig, the more bad news you get," a participant in the due diligence said. "The numbers just aren't getting any better."

The chief problem involves MGM's large but heavily exploited film library, which hasn't been replenished with attractive new titles in years.

Those invited to the binding round of bidding include Time Warner, Lionsgate, Liberty Media, Summit Entertainment, Access Industries and Elliott Management. MGM's consultant in the bidding process, Moelis & Co., is eager to pry an acceptable offer from one or more parties as the Lion has a big interest payment to lenders coming due March 31 and the studio's credit facility expires April 8.

Time Warner might be in the best position to make a compelling offer. The Lion film library would fit well with its Warner Bros. catalog, which boasts pre-1986 MGM titles originally acquired by Ted Turner.

Lionsgate also boasts good operational synergies with MGM. But if it bids at all in the second round, the mini-major is unlikely to offer as much as in the first, nonbinding round, when Lionsgate placed a $1.5 billion bid for the Lion.

Liberty isn't considered one of the more aggressive in the mix, as its offer amounts to little more than merging its Overture Films with MGM as a means of boosting value. The offer hinges on MGM's undertaking a simple restructuring of debt rather than outright sale, in which case most MGM equity would be transferred from a current ownership consortium to holders of $3.7 billion in MGM debt.

There's a gathering sense that a debt restructuring is more likely than a sale of the studio. In anticipation of such a possibility, lenders have been busily consolidating their positions from among an initial group of more than 140 MGM lenders.

One source suggested that as much as 51% of the Lion's debt now is held by just eight parties.

Many familiar with Moelis' bidding process predict that second-round offers won't be much more than $1.5 billion. An earlier round of nonbinding offers topped out at roughly $1.7 billion.

If that proves the case, it would be unlikely that lenders would agree to a sale and instead begin negotiations of a prepackaged bankruptcy designed to shift equity to debt holders.

Elsewhere among prospective suitors, Summit's interest in MGM appears dim at best, though it was invited to the next round of bidding. Access, a diversified global company controlled by industrialist Len Blavatnik, could be hampered by a lack of strategic upside from any MGM purchase; ditto Elliott.

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

http://www.hollywoodreporter.com/hr/con ... b2f6039669

[DB7878]

Today there is a wave of stories saying that MGM/Lenders are thinking to refuse all bids and convert their debt to equity keeping MGM independent etc.

These 'leaks' are probably by the lenders and meant as encouragement to the bidders to come in with higher final offers.

[DB7878]

From the Hollywood Reporter article quoted above:

There's a gathering sense that a debt restructuring is more likely than a sale of the studio. In anticipation of such a possibility, lenders have been busily consolidating their positions from among an initial group of more than 140 MGM lenders.

One source suggested that as much as 51% of the Lion's debt now is held by just eight parties.

There are two basic groups - the original lenders who bought in at par and those who bought in much later at something around 60¢ on the dollar. The two have very different goals in this process. The original lenders want as high a bid as possible and probably prefer to sell and walk away. However, the buy in group want to get control of the MGM library and any low bid means they lose that to the new owner/bidder. A high bid would mean a profit, but no library. If the latter group has been able to consolidate ownership and now controls more than 50%, we can expect that a debt restructuring with a debt to equity conversion. They will get MGM debt to a more manageable level and own the company and its library. It would also mean that many of the current employees are likely to survive as will MGM as an independent company. The question re: DLM becomes what those people - who made the Movie - now that they have some new funding - want to do with the DLM franchise?

[DB7878]

Here's an update on the bidding. Friday is the deadline and basically it's failing. This isn't necessarily bad for our goals, but it could be.

Major creditors have opened discussions with the companies behind the offers with a likely result that there will be restructuring keeping the company independent and bypassing a direct sale of the assets. Probably with new management - picked by the new owners, who will also make available some new financing to fund projects. The danger is that the new owners will decide to focus on and fund ONLY the high profile stuff (e.g. Bond and Hobbit) leaving no room for smaller more meaningful (to us) projects.

Here's link to the update:
http://www.deadline.com/2010/03/final-mgm-bids-due-friday-so-whos-in-and-whos-out-or-doesnt-it-matter/

[DB7878]

Last week the price for MGM debt dropped precipitously by 5.31 down to 54.33¢ on the dollar. Based on statements in the press the price may have already - since last week - reached as low as 50¢ reflecting a failure of the first choice lenders' strategy of selling MGM assets to the highest bidder and walking away. Plan B (and C, D, E .....) - as already being discussed in press - is probably going to entail a lot of maneuvering as the various players struggle to reach their own goals.

[DB7878]

From WSJ March 24, 2010

MGM Debt Holders Object to Fire-Sale Bids

By MIKE SPECTOR And LAUREN A. E. SCHUKER

Delays are in store in the auction for Metro-Goldwyn-Mayer Inc., as hedge funds controlling big chunks of the studio's bank debt signaled Wednesday an unwillingness to sell for a lowball price.

Weighed down by a nearly $4 billion debt load, MGM asked its lenders to grant leniency on debt payments until mid-May as it continues to work on backup restructuring plans that would hand control to creditors, said people familiar with the matter. A forbearance on the studio's debt is set to run out at the end of the month.

The move – the fourth time in the past few months that MGM has asked for an extension on debt obligations– represents heightened brinksmanship among the studio's creditors and suitors. Signaling their willingness to take control of MGM could be a move by creditors to inject more competition into the bidding process and fetch higher prices for the studio with the roaring lion logo.

The lenders have become increasingly frustrated with MGM's restructuring process, which has dragged on since November and yielded disappointing bids, according to people familiar with the matter. During a conference call Wednesday, some creditors had hoped to be given a choice between bids for the company or a separate plan that would give them control. Instead, they were told MGM continued to work on the separate plan with other creditors and that the film studio needed yet more time to get a deal done.

MGM has received only three bids, all at roughly $1.5 billion or less, according to people familiar with the matter. Those making offers for the studio include Time Warner Inc., Lions Gate Entertainment Corp. and Len Blavatnik's Access Industries. Creditors had been hoping for a figure of around $2 billion.

MGM declined to comment.

MGM has crafted a standalone plan in which creditors would convert debt to equity and likely seek a cash infusion from another investor to fund new film production, these people said. Any plan would likely be done through a streamlined bankruptcy process that received approval from many creditors in advance.

MGM's best asset is its film library, which boasts more than 4,000 titles and includes the James Bond and Pink Panther franchises. But the library's cash flow has suffered amid a lack of new releases.

Some creditors are hopeful that MGM's latest release, "Hot Tub Time Machine," could reinvigorate the library amid early positive buzz. The studio projects the film could take in more than its initial budgeted projections, a person familiar with the matter said. In addition, MGM has partnered with New Line Cinema for two separate "Hobbit" films, possible blockbuster pre-quels to "The Lord of the Rings" trilogy.

Recent developments in the trading of MGM's bank debt are driving the deal's current dynamics. Over the past few months, several hedge funds have bought into the studio's bank debt at around 60 cents on the dollar. Those investments imply the studio is worth about $2.4 billion, well above what current suitors are bidding.

At least $1 billion of MGM's bank debt is now held by a small group of hedge funds, said people familiar with the matter. Among the largest holders are Anchorage Advisors and Highland Capital Management, these people said. Apollo Global Management holds a small piece of MGM's debt.

Overall, about eight to 10 private investment firms now hold between $300 million and $400 million chunks of the studio's debt, these people said.

Many of these hedge funds sit on a steering committee that is negotiating with MGM and its advisers. The two camps met Tuesday to discuss MGM's most recent bids and are set to convene again next week to continue discussing a standalone plan.

"We are evaluating joining the steering committee," said Patrick H. Daugherty, a partner and head of private equity at Highland, in a statement. "And we are certainly willing and able to consider a standalone plan that would provide a full recovery for our investors."

News Corp., the parent of 20th Century Fox and owner of The Wall Street Journal, offered to inject cash into MGM in exchange for an equity stake back in January but didn't hear back, people familiar with the matter have said.

MGM took on its large debt load in a 2005 buyout that handed the studio to private-equity firms Providence Equity Partners and TPG, as well as media companies Sony Corp. and Comcast Corp.

—Peter Lattman contributed to this article

[DB7878]

From WSJ

MARCH 25, 2010, 3:54 P.M. ET

Lions Gate Signals It's Out of MGM Auction

By LAUREN A. E. SCHUKER

Lions Gate Entertainment Corp. on Thursday indicated it would drop out of the auction for Metro-Goldwyn-Mayer Inc., according to people close to Lions Gate, leaving only two bidders for the debt-ridden film studio.

Lions Gate, the television and film company behind the "Tyler Perry" and "Saw" franchises, 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, according to these people. That effectively removes Lions Gate from the bidding.

...........................


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. On Wednesday, 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, according to people familiar with the situation.

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, so they have become active in negotiating other plans with MGM for a possible turnaround.

[DB7878]

Decision time this weekend:

MGM studios on verge of bankruptcy

Hollywood film-maker faces 'brinkmanship' talks with potential buyers as it sinks under $3.7bn debt

By Stephen Foley in New York

The future of one of the world's most famous film studios is hanging in the balance this weekend, as creditors of Metro Goldwyn Mayer debate whether to force the company into bankruptcy.

Famed for its roaring lion logo, the historic studios are home to the James Bond and Pink Panther franchises, and to a back catalogue of classics from Gone With The Wind and Ben-Hur to The Wizard of Oz and 2001: A Space Odyssey.

But a highly leveraged $5bn takeover by a private equity consortium in 2004 crippled the company, and the investors who financed that deal are faced with a choice between selling for less than they are owed, or trying to arrange a restructuring in bankruptcy that could give them formal ownership, and a shot at restoring the studio to former glory.

Creditors set a 31 March deadline for an agreement, but MGM asked last week for that be extended while it tries to gee up improved offers from two remaining bidders: Time Warner, owner of Warner Brothers studios, and Access Industries, a conglomerate controlled by Len Blavatnik, the London-based Russian businessman who is ranked as one of the 100 richest people in the world.

Lions Gate Entertainment, the film and TV production group, dropped out of the auction last week. Time Warner is said to lead the bidding with an offer of $1.5bn, far below the $2bn that creditors had expected.

MGM has struggled under a $3.7bn debt, having overestimated the likely cashflows from a library of more than 4,000 movies stretching back to its foundation in 1924. A slump in DVD sales immediately wrecked its business plan, and the consortium of equity investors – which included media groups Sony and Comcast, as well as four private equity firms – has already written off its investment.

That leaves the fate of the company in the hands of bondholders, who have been told they will be presented with a proposal for a debt-for-equity swap, possibly as part of a pre-packaged bankruptcy deal which would have to be rubber-stamped by a judge. Talks are continuing this weekend in an atmosphere of brinkmanship, and MGM's advisers hope they can tempt Time Warner or Mr Blavatnik to improve their offers.

Media sector deals such as Disney's $4bn purchase of Marvel prove that financing is once again available for merger and acquisition activity. Michael Corty, an analyst at Morningstar, said Time Warner is likely to be a disciplined bidder for MGM – unlike the consortium that bought it from billionaire Kirk Kerkorian and his business partners in 2004.

"The $5bn buyout price was viewed as the sign of a Hollywood bubble at the time and the value has declined," Mr Corty said. "We view Time Warner's interest as an attempt to buy an asset on the cheap and believe it is willing to walk away if the final price is too high."

http://www.independent.co.uk/news/busin ... 29154.html

[DB7878]

Oh-Oh

Sending a very public message to MGM, it appears, and to Time-Warner:

MGM creditors grow tired of the script
By JOSH KOSMAN
Last Updated: 4:51 AM, March 29, 2010
Posted: 12:38 AM, March 29, 2010

Metro-Goldwyn-Mayer's ability to sell itself and avoid bankruptcy looks more in doubt as at least some creditors grow tired of giving the venerable studio more time to dig itself out of its financial hole.

In an interview with The Post, Patrick Daugherty, a partner at hedge fund Highland Capital Management and a new member of MGM's creditors' committee, said he was disinclined to give the studio until mid-May to put together an out-of-court restructuring, saying that nothing he's heard thus far from MGM management sounds convincing.

"I am willing to give our view, hear theirs and work to an outcome that makes sense," he said. But "my expectation tells me bankruptcy is more likely than not."

Daugherty said that MGM CEO Stephen Cooper's plea last week for time to come up with a restructuring plan left him unmoved, and that at this point Cooper hasn't sold him on the idea that more time would help the studio put together a reorganization plan outside of bankruptcy court.

Struggling under a $4 billion debt load assumed when the 86-year-old studio was taken private nearly five years ago by a buyout team led by Texas Pacific Group and Bain Capital, MGM has been trying to sell itself since November but so far has failed to attract bids high enough to make a sale worthwhile.

Creditors had been expecting offers to come in around $2 billion, but so far the bids have topped out at $1.5 billion. Complicating matters further, one suitor, Lionsgate Entertainment, last week dropped out of the hunt.

Remaining are offers from Time Warner and Russian billionaire Len Blavatnik's Access Industries.

Daugherty dubbed Time Warner's $1.5 billion bid, thus far the steepest one on the table, a "Daffy Duck effort."

Read more: http://www.nypost.com/p/news/business/m ... z0jaZL6TfQ

[DB7878]

Last week's pricing for MGM debt collapsed to 47.2¢ on the dollar - a drop of about 7.22¢ from the week prior.

This is level is probably still high considering over the weekend the biding process for the MGM library failed to justify even this low level of pricing.

Likely now will be a reorganization. The creditors will take over MGM.

Will they sell off assets piecemeal? or keep everything close hoping for improvement in the overall economy and perhaps a better shot at higher bids later?

[DB7878]

MGM lenders to meet Thursday
Debt extension tops agenda in wake of disappointing bids
By Carl DiOrio
March 30, 2010, 11:00 PM ET
More than 100 MGM lenders will meet Thursday to decide a course of action in the wake of disappointing bids for the Century City studio.

A brief additional extension of the Lion's debt forbearance is possible, if only to allow a bit of decorum as a plan is concocted to shift studio ownership from a current consortium to the debtholders. Further bidding for the entire studio is unlikely, but a handful of investors likely will be asked to make offers on narrow equity stakes as a means of raising operating capital.

http://www.hollywoodreporter.com/hr/content_display/news/e3id9db7bed8e9402cb921e843437754f54