By Anne Thompson | Thompson on Hollywood October 1, 2009 at 11:27AM
MGM has been under serious duress as it attempts to stay in business, while keeping up with even the interest owed on its staggering $3.7-billion debt. While the following statement indicates that the company will be relieved of three interest payments, there are miles to go before MGM comes out in the clear. The struggling studio has avoided being forced into bankruptcy by its creditors, which would have decreased the value of the company, which still owns a 4,000-title movie library as well as the Bond and Pink Panther franchises.
“MGM is pleased to announce that the Company has entered into a forbearance agreement with its lender group. The Company is appreciative of its lenders' ongoing support. Under the terms of the agreement, MGM’s lender group has agreed not to enforce its rights or remedies arising as a result of the Company’s request to not currently pay interest due on September 30, October 31, and November 30, 2009.
This agreement, which expires December 15, 2009, provides MGM with additional liquidity as discussions continue regarding the development of an optimal capital structure in support of the Company’s long-term business plan. With the agreement in place, MGM has taken an important first step in ensuring that the Company has enhanced financial stability and adequate liquidity to implement its business strategies.”
It doesn't help that Fame tanked. Will MGM (which has been dipping into its UA coffers) have enough money to invest in The Hobbit, which could be a big title for them? Production on another modestly-budgeted remake, Red Dawn, has begun. Still to open are a series of comedies including Hot Tub Time Machine, starring John Cusack, the Sony co-production The Zookeeper, starring Kevin James and the horrific Cabin in the Woods.
Harry Sloan has departed as MGM CEO, ceding power to motion picture group chair Mary Parent, CFO Bedi Singh and organization guru Stephen Cooper, who was hired by MGM equity holders Providence Equity and TPG after he earned high marks for turning around Enron. Other MGM major equity holders are Sony, Comcast, DLJ Merchant Banking and Quadrangle Group.
It's hard to imagine that MGM's 150 lenders won't lose equity. "It's like Wile E. Coyote going over a cliff," says one industry insider. "They made their equity deal at the end of the [boom] market. It was highly leveraged, when you couldn't take enough money from lenders. Now, no lender wants to give any money away. It's a tough circle to square."
Meanwhile, other companies are sniffing out opportunities, including Summit Entertainment. When companies get weak, the wolf is often howling at the door.