Could MGM Be Forced Into Bankruptcy?

For months MGM has had ongoing negotiations in its attempt to restructure its debts outside of bankruptcy; but so far they have only met with failure.  So much failure has faced MGM’s attempts to restructure outside of bankruptcy, that some analysts are predicting that movie studio could be forced into bankruptcy by September 15th, that’s when over $400 million of debt owed by MGM becomes due.  Already the movie studio known for its very valuable James Bond movie rights, have received six forbearance agreements from their 100 plus creditors.  But some analysts think that creditors are growing weary of MGM’s financial issues and may force the company into bankruptcy.

“It’s kind of become a joke,” said an executive at one of the companies considering a strategic partnership with MGM. “There is a real fatigue among the lenders after all of the forbearance agreements.”

The studio has secured six forbearance agreements, or delays of the deadline for paying principal and interest on its senior bank debt. Strapped by almost $4 billion in total corporate debt, MGM repeatedly has gotten lenders to postpone recoupment of a $250 million revolving credit facility and $200 million or so in related interest payments.

If MGM is in fact forced into a bankruptcy, any prepackaged bankruptcy deal would need to be approved by 51 percent of lenders and since only four lenders own 35 percent of MGM’s publicly traded debt, that provision gives a hand full of lenders the power to veto any restructuring plan.  And it is almost certain that any prepackaged bankruptcy will shift control of the company from its current consortium of Hollywood players to debtholders who really have no understanding of the movie industry, which some fear could spell the end of MGM.