If you’ve been reading these pages over the past few months, you’ll know that there’s been a lot of problems over at MGM. With $4 billion in debt and the fact it’s failed to have the box office success it promised its creditors, it’s had to call in a restructuring expert to try and save the once mighty studio.
Recently it was reported that the only solution was likely to be to transfer the ownership of the studio to those who hold the debt, so they can sell it off and hopefully get their money back. However in conference calls between the studio and its creditors yesterday, Nikki Frinke is saying that things got a little stormy, with MGM now asking its creditors to waive interest on its loans until next February, so they can use that cash to cover the $20 million they need just to keep going in the short term, as well as make inroads into the $150 million needed to fund their current production slate, including the upcoming Hobbit movies. The implication is that unless this happens, the studio will literally run out of money and have to go bankrupt.
However there’s a problem, as MGM is having difficulty in getting all of its creditors to see the upside in agreeing to this. The companies that currently own MGM, such as Sony, won’t put their hand in their pockets to cover studio’s current cashflow problems, as they’ve already had to write off their investment, knowing that it’s the creditors who now pretty much own the studio. However the creditors aren’t yet willing to help out, as they’re aware that currently the studio as a whole is only worth about half its debt. Therefore if they keep helping fund the studio, there’s a good chance they could just be throwing money away. It’s now down to which option will allow the creditors lose the least money – keeping the studio going, or forcing it into bankruptcy.
The suggestion is that it’s now got to the point where the safest move for the creditors may be to make MGM bankrupt, as at that point, they are guaranteed to be the first people to get paid from the sale of any assets, and that that by splitting everything up (so that for example the Bond franchise would be sold separately to the film library), they’d get a lot more of their money back, as individually the assets are worth more than the troubled studio as a whole.
Although yesterday’s conference call suggested many creditors were ready to push the company into bankruptcy, some industry experts have said that MGM should be able to push its plan through, because as long as it can convince 51% of its creditors that it’s best to keep the company going rather that push it through bankruptcy, that would force the rest of the debt holders to also agree to the plan to waive interest. Many expect that this is what will happen, although MGM will have to make some major changes and really convince its credtors it can do what it says it will, if it wants to survive through 2010.
Bankruptcy would certainly be bad news, throwing the future of Bond into doubt and probably delaying the Hobbit films (MGM currently holds half the film right to Hobbit adaptations, so a new rights deal would have to be worked out if MGM goes bankrupt, and that could take some time). While it hasn’t got to that point yet, it’s certainly a stormy and very difficult time for the studio.