Movie studio Metro-Goldwyn-Mayer is still struggling to sale itself and find a non-bankruptcy method of reorganizing its $5 billion debt load. But with about 10 days to go before the next round of potential investor bids are due, MGM may need to seriously consider filing Chapter 11 bankruptcy if it is to survive.
MGM put itself up for sale last fall as part of an effort to pay off the debt it took on in a $5 billion leveraged buyout in 2004. Its 4,000-title film library and rights to the James Bond series and “The Hobbit” have attracted the eye of rival studios and private equity firms. But potential buyers have signaled that they were willing to pay only about $1.5 billion or so.
That may lead to MGM considering filing for a prearranged bankruptcy that would involve its creditors taking over the studio in exchange for forgiving their debt…
Outside of bankruptcy, MGM has been able to arrange a forbearance agreement with its lenders; but the agreement will expire March 31, 2010. And even if they movie studio is able to get an extension on the forbearance agreement, they must still contend with a $250 million revolving credit line which becomes due in early April. Without the help of bankruptcy, there is no guarantee that MGM will be able to stop the lenders from taking aggressive collections actions against it or even forcing the company into a Chapter 11 bankruptcy. If MGM decides to file Chapter 11 bankruptcy it will be able to benefit from the automatic stay and keep possession of the company until it can come to a settlement with its creditors.