A New York federal bankruptcy judge on Thursday officially blessed the "pre-packaged" plan by creditors to wipe out about $5 billion in debt, clearing the way for the 86-year-old entertainment company to focus its efforts on producing and releasing movies and television shows.
With Thursday's ruling that the plan meets the requirements of the U.S. bankruptcy code, no more legal obstacles remain for MGM to relaunch under Spyglass Entertainment founders Gary Barber and Roger Birnbaum, who will become chief executives of what will be a slimmed-down studio. The staff will drop to about 320 from over 400.
MGM will not actually emerge from Chapter 11 until JPMorgan Chase closes a planned $500-million loan facility to fund the new MGM's operations and productions. It is currently being syndicated by the investment bank -- which is itself kicking in $75 million -- and is expected to be funded by mid-December.
The studio's restructuring process began in May 2009, when investment bank Moelis & Co. was hired to advise management on how to fix its finances as it was struggling to afford interest payments of $300 million per year. That August, Chief Executive Harry Sloan was replaced by Stephen Cooper, a former CEO of Enron and a turnaround expert known for his work at Krispy Kreme Doughnuts.
Moelis' and Cooper's attempts to resolve MGM's financial woes and satisfy the studio's 140-plus creditors took much longer than expected. After several months of discussions, the parties agreed in late 2009 to put the company up for sale. However, the auction attracted few bidders and none willing to pay the $2 billion-plus that creditors were seeking. By the spring of this year, it was back to the drawing board as the MGM team began working on a restructuring plan that, after months of debate and internal disagreements, was finally endorsed by creditors in late October.
When MGM officially emerges from bankruptcy in the coming weeks, Moelis and Cooper's firms will receive multimillion-dollar bonuses for their work. Moelis & Co., which has already received $1.2 million, will get a $9.5-million payment. Cooper's firms, which have been collecting $375,000 per month for their services running the company, will receive a $4-million "success fee."
Barber and Birnbaum plan to restart production at MGM, which released only one movie this year, and put together an annual slate of seven or eight films that will come out starting in 2012. They also plan to co-finance two movies based on "The Hobbit," along with Warner Bros. The studio needs to close a separate loan of between $265 million and $275 million to fund its portion of those two movies, which are to be directed by Peter Jackson.
Investor Carl Icahn, who owns about 18% of MGM's debt, had been seeking to arrange a merger of the studio with Lions Gate Entertainment, in which he is the largest shareholder. However, recent talks between the two companies have not resulted in a deal.
-- Ben Fritz and Claudia Eller