MGM Preparing For Restructuring Or Bankruptcy; TPG, Providence To Eat $875 Million Equity Loss

Tyler Durden's picture

Even as market optimism rages unabated despite the occasional dip in the market (where everyone on the sidelines is buying, buying, buying GE stock), the economic fundamentals continue souring. The latest casualty - legendary movie studio, Metro-Goldwyn-Mayer, Inc. Well, not so legendary these days, with the only consistently profitable venture to come from the studio being the James Bond series, and alas that's the problem. According to Bloomberg, MGM has informed creditors it will skip a $12 million coupon payment (the technical term here is waived, but good luck if you expect to see one penny of that amount). Moelis & Co., whose restructuring division is comprised of the ex-Jefferies Derrough-Carlston dynamic duo (and henchmen), is advising the firm on what will likely end up being a $3.7 billion debt for equity swap.

“Our discussions with lenders are one step of many in a
proactive and ongoing process to correct MGM’s balance sheet and
position the company to fulfill its business objectives,” the
studio said today in a statement.

Alas, life for Bill and Thane may be a little more difficult than expected, as lenders don't seem to be too happy with going from secured to equitized. Unless the company is able to reach a consensual agreement with lenders outside of court, this could easily become a very messy free-fall (as every restructuring pitchbook likes to point out) Chapter 11.

The proposal was presented this week in a bullet-point
document and discussed on a conference call with MGM management
and creditors, according to the people. The studio formed in
1924 has been trying to raise money to produce new films.
Lenders on the call objected to the proposal, one person said.

Yet the biggest losers in all of this will be the private equity firms that took the company private in 2004. The biggest equity checks were written by: Providence Equity Partners - $525
million, Texas Pacific Group - $350 million, Sony Corporation of America -
$300 million, Comcast Corporation - $300 million, and DLJ Merchant Banking
Partners - $125 million. One at least hopes that JP Morgan and Credit Suisse managed to syndicate their exposure in the firm's multi billion credit facility. One wonders is Mr. Thompson Dean of DLJ Merchant Banking Partners is still around to reap the benefits of his preliminary enthusiasm.

"We believe this landmark transaction -- partnering with two great global
entertainment companies -- is an exciting opportunity for both our partners
and investors," said Thompson Dean, Managing Partner of DLJ Merchant Banking
Partners.

Probably not.