MGM passes audit

Court-supervised reorganization unlikely

By Carl DiOrio

July 15, 2009, 11:42 AM ET

MGM has passed its annual audit.

That’s the expected good news, delivered by the Century City-based studio on Wednesday. An unfortunate related update is that a J.P. Morgan-led creditors committee appears unmollified by the announcement.

There was never considered a sizeable risk that the audit would result in a warning being issued about MGM’s viability as a “going concern.” But the mere theoretical chance of that happening shook creditors, who then hired investment consultancy Houlihan Lokey to advise on possible strategies for dealing with the situation.

Fortunately for MGM, the successful conclusion of its audit means the creditors would be hard-pressed to force a court-supervised reorganization of the studio. It appears the more than 140 lenders comprising the creditors group can only jawbone about their concerns for the time being.

MGM, which is owned by a consortium of private equity firms, Sony and Comcast, also has been mulling how to restructure its finances. One big concern involves the April expiration of MGM’s credit facility at J.P. Morgan.

MGM didn’t mention a recent re-valuation of its film library conducted by Bank of Montreal. But the results of that new valuation will bear directly on any discussions the studio has with prospective new financial partners in the future.

Word among financial community sources was that the semi-annual library valuation came in considerably lower than MGM’s previous estimate but at a level that allows them to continue to operate under the current debt facility.

“MGM is in full compliance with all of its debt covenants,” the studio said.

MGM bears more than $4 billion in debt, and public trading in Lion debt instruments has been active. It’s believed that famed corporate raider Carl Icahn has been quietly buying debt derivatives instead of debt, because he’s not approved by creditors to acquire actual debt.

MGM passes audit

We’re at that point in the ‘House MD’ episode where the patient’s heart stops, but with the help of those handy little shocker devices the patient is brought back for the next round of treatment.

This means the bankers will wait for events outside their direct control to force the issue.  Ominously the library has been valued lower than prior years reflecting an industry devaluation in prospective dvd sales – not a temporary move but reflecting the fragmentation of audience and successful growth of competing avenues taking that audience.

Is there a pathway buried somewhere in all this mess for MGM to start up another Dead Like Me project?