MGM Files for Bankruptcy Protection

LOS ANGELES: As part of a reorganization plan that was last week approved by its lenders, MGM today filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York, and will continue normal business operations throughout the process.

The studio, which has been struggling with a $4 billion debt, says it has sufficient cash on hand to remain in operation throughout the Chapter 11 process. It is seeking court approval to continue paying its employees, vendors, participants, guilds and licensors. It expects its reorganization plan to be approved within 30 days.

Lenders will exchange the $4 billion in debt for most of the equity in a post-Chapter 11 MGM. The balance will be held by Spyglass Entertainment, whose co-chairman and CEOs, Gary Barber and Roger Birnbaum, will run the studio following the reorganization. The plan has now received the backing of Carl Icahn, a significant debt-holder who had been lobbying for an MGM merger with Lionsgate. He said in a statement today: "I am pleased that we were able to obtain an agreement to make changes to the MGM Prepackaged Plan that allows me to support it and enables the company to avoid a potentially costly and disruptive bankruptcy process." 

Under the revised terms of the plan, MGM will not acquire the Cypress film library, and its corporate governance structure will include ability of stockholders to call special meetings. There will be also restrictions on poison pills and staggered boards, and Icahn will also have the right to designate a member on the MGM board following its emergence from bankruptcy.

"For many months, we have been working with our lenders to explore the strategic options available to MGM to improve MGM’s financial position and maximize the Company’s value," said co-CEO Steve Cooper. "By sharply reducing MGM’s debt load and providing access to new capital, the proposed plan of reorganization achieves these goals. Having received approval through our recently completed solicitation process, we are pleased that the lenders support MGM’s approach. We now look forward to quickly emerging from Chapter 11."

Barber and Birnbaum said, "MGM is emerging from one of the most challenging periods of its storied history. We are honored and inspired at the prospect of leading one of Hollywood’s most iconic studios into its next generation of unforgettable filmmaking, global television production and distribution, and aggressively pursuing, developing and exploiting new digital entertainment platforms."

Upon its exit from bankruptcy, MGM expects to raise approximately $500 million in financing to fund operations, including production of a new slate of films and television series. MGM will retain ownership of all of its assets.