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

Probably not.

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Anonymous's picture

"Yet the biggest losers in all of this will be the private equity firms"

So it's not all bad news. Nice to see PE actually get caught in the middle of their usual "destroy a company's balance sheet" game.

Hephasteus's picture

Oh wow. For great justice remove every zig. Every one of those equity partners needs a beating.

Karston1234's picture

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kurt_cagle's picture

It looks like even the Bond market is taking a beating these days.

kurt_cagle's picture

Sorry, there was no way that I could walk away from that one.

SilverIsKing's picture

You almost stole my thunder with that one. What I was going to say was, "even James Bond can't get them out of this one."

Karston1234's picture

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deadhead's picture

nice job TD.


Cheeky Bastard's picture

My only wish was, when i saw this article, that Hunter S. Thompson could have been more sane and not pull that trigger back in 05. Fun, it was just 2 yrs in front of him ... Goddammit 

deadhead's picture

amen cb... imagine his writing about the fed? vampire squid?  the list goes on....he probably would have even given up the wild turkey

Sqworl's picture

CB: Never given up his Wild Turkey or the smokes..

velobabe's picture

cheeks me too.

i don't know what happened that night, i was lying on a surgical bed at AVH, when they brought him in a body bag. it was so screwed up that day. anita was working out at the aspen club. stars, moon everything was misaligned, cause i fucked my life up with gravity,

B I G    T I M E.

he said he just had to much pain. wonder, really wonder what that state would be like.

he truly was the most hysterical person. he would attend the woody creek caucus meetings, his cause was for the little people and not to expand the airport so the big mother fucking gulfstreams couldn't land and own the place. truly battled a good battle. i would almost pee in my pants when he would speak at these caucus meeting. cause his delivery was just classic  h u n t e r . plus my really good friend john oates, Hall and Oates, was a great support. they lived across from each other. don henley down river and jimmy, bipolar,  ibbotson lived uphill. ed bradley lived on my road. when ken lay rented a house from a desperate bitch, next door to ed, i think everybody just had it.  O V E R.

some people had conviction in america. they are dead cheeky.

February 20, 2005 President's day weekend in aspen, all the docs were busy with ski accidents. i got so screwed and got the back orthopedist.

ya know what i absolutely H A T E american holiday, especially 07/04.

Anonymous's picture

Let's see here:

-Providence Equity Partners - $525 million_

"Education Management Corp is set to price its planned $380 million IPO in early October...
In June 2006, EDMC was bought by a group of private investors, Providence Equity Partners, Goldman Sachs Capital Partners (GS.N) and Leeds Equity Partners."

-Texas Pacific Group - $350 million-

"Myer, the large department store company that is partly controlled by the American private equity firm Texas Pacific Group, said on Friday that it planned to file for an initial public offering at the end of the month.
The offering, if successful, is expected to raise up to 2.5 billion Australian dollars, or $2.2 billion."

Need I continue?

Now that Mary has passed away, there's only Peter left to pay Paul.

NoBull1994's picture

Pretty boy Thane doesn't look much of the investment banker.  Hopefully he has upgraded his staff from Jefferies - that restructuring team was a bunch of retards still confused by four-function math.

Gubbmint Cheese's picture

Knowing Wall Street - they will make moneny on the MGM deal somehow - because as well all know...


Dimons are forever.

*rim shot*

Lionhead's picture

There's no business like show business...  This great global entertainment company is a turkey in the same fashion as the airline business. Liquidate it and put it out of its misery. It's "roarin" days are long past.

Anonymous's picture

Wow. MGM. Kirk Kerkorian's "Rosebud".

Anonymous's picture

Tyler, I think you're posting a bit too much. *Read* the articles you reference.

Tyler wrote, "The biggest equity checks were written by: ... Sony Corporation of America - $300 million, Comcast Corporation - $300 million."

Bloomberg story: "Sony Corp. and Comcast Corp. each owners of 20 percent, have written off their investments."

MGM stake is carried on SNE's and CMCSA's balance sheet at zero. How would they be "losers" on this news? Note that private equity was apparently not as prudent/honest about MGM's value as were SNE and CMCSA.

(I can't believe Tyler was able to resist mentioning that Goldman was an adviser to MGM on the go-private deal back in '04.)

Tyler Durden's picture

How have they not be losers on their investments if they have written them down to zero (it doesnt matter if they wrote them down a minute ago or five years ago)?


Anonymous's picture

His nickname at DLJ was DEANO..... how is that for background!

D.O.D.'s picture

I'm starting to get tired of all the bullish news from zerohedge, Tyler, this kind of info is going to lose you readers...

McGriffen's picture

It would be compelling to see how the PE firms shake out in a blown deal like did the partners/firm place their own capital at risk or just that of investors (endowments, pensions, wealthy families) into "XYZ capital XX**"

**disclaimer:  heads we win (2 and 20), tails you're fudged as we still got 2

another bad call for TPG...that Wamu trade still gotta hurt

Anonymous's picture

TPG god killed with Wamu and now this? I wish i got the priviledge of blowing billions gambling like those bozos!

ghostfaceinvestah's picture

I was going to mention that - they put in, what, $1.5B, in leading a $7B investment in WM, 6 months before it was taken down?

McGriffen's picture

Numbers sounds good, certainly on the total.  April - May 2008, i believe, when that was closed.  In addition to WM, probably a few sovereign funds that got blitzed on buying finance preferreds (ones not named 'GS' anyway).

Anonymous's picture

I'm not willing to opine on whether PE is good or bad but I will point out that in the average fund there are about twelve investments made:

1-2 of these will be complete losses
2-3 will be dogs that take a lot of work and you hopefully get your bait back
4-6 will get you 1.5-2x your money back in five years
2-3 will get you 2-4x your money
1-2 will be home runs, returning 4x+

PE has outperformed the stock market for the last thirty years. The model -- putting intelligent people in control of multiple portfolio companies to leverage the G&A and remove the nepotism, cronyism, sloth, and waste typically found in both public and family-owned companies -- works.

The alpha is disappearing slowly but the right firms still generate more of it than almost anywhere else on the street. It is an investment class that is all about the people.

Anonymous's picture

The whole reason Private Equity is private is
because they are more guilty of these abuses
(I'll give you sloth because the profit motive in PE is greater), not less!

Anonymous's picture

It's different this time.

Anonymous's picture


chumbawamba's picture

Eh.  A very good friend of mine used to be Chief Engineer at MGM.  They've always been a turkey.  Corporate incompetence was par for the course there.

I am Chumbawamba.