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Lions Gate gets amendment from lenders to raise threshold for change of control

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With activist investor Carl Icahn’s increased stake in Lions Gate Entertainment triggering a potential default in its revolving credit facility, the company has retained an amendment from its lenders that raises the change-of-control threshold from 20% to 50%.

Last week, after the expiration of his $7-per-share tender offer for Lions Gate, Icahn’s holdings in the Santa Monica-based movie and TV studio rose to 31.8% from just less than 19%. Because his stake exceeded 20%, a default could have been triggered under the covenants of Lions Gate’s credit facility that could have accelerated the repayment of more than $400 million in debt.

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Lions Gate announced Tuesday morning that it had worked with its lead bank, JPMorgan Chase, to amend the terms of its credit facility with a ‘favorable interest’ of about 3% and that ‘other key financial terms and provisions remained unchanged.’

Icahn’s stake in Lions Gate could increase by June 30, a secondary period when other investors can tender their shares. If his ownership hits 33%, it would give Icahn veto power over any mergers or acquisitions and trigger a change-of-control provision in the employment contracts of senior management, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, and allow them to leave with multimillion-dollar payouts. However, neither executive is expected to depart voluntarily.

After the June 30 deadline, Icahn could buy additional Lions Gate shares on the open market. He has also said he plans to launch a proxy fight to win control of the company’s board and is expected to put up a slate of directors in the coming weeks.

Then, of course, there is the possibility that, to avoid a costly proxy contest, Icahn and Lions Gate could strike an agreement that would give the investor several seats on the company’s board.

Icahn was not immediately available for comment.

-- Claudia Eller

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