The Lion's Last Roar? MGM Fights $4 Billion Debt

Yesterday, I questioned MGM's ongoing ability to sustainably market its movies as part of our weekly box office discussion and the studio's new update of Fame. I wasn't trying to be pissy, merely pointing out that the studio doesn't do a wonderful job year-in and year-out with its films, which is why it really only has one franchise - James Bond. But today, Deadline Hollywood reports that The Lion is fighting just to stay afloat financially. "MGM said it needed $20M in short-term cash flow to cover overhead, and an additional $150 million to get through the end of year and continue funding its projects, and to start Peter Jackson's Hobbit." The estimate of the debt is $3.5 - $4 billion, and while the studio doesn't have a lot of forward momentum, it does have an enviable catalog, as anyone who's picked up the gorgeous and enormous MGM/UA anniversary box set could tell you. So, in order to cover the debt, MGM may have to sell off even more of its properties than it already has. That means both 007 and The Hobbit could get new homes. Yesterday, the studio had a conference call with bondholders and the prospects are grim. If the interest payments on the debt are waived through February 2010, MGM can conceivably keep its current production slate going. But then what? The bondholders, unhappy with the prospect of not being paid while holding the bag on tons of debt that has no value to anyone else (or appreciably less value than the figure in question), apparently would let MGM go bankrupt, and because of their preferred position over stockholders in asset liquidation matters, the bondholders would be awarded settlements first once bankruptcy proceedings are ironed out. However, if that happens, the bondholders lose...Bond. Somebody else would obviously gobble up the future rights to 007. Then there's the option of selling the studio, which Nikki Finke writes is also a disaster in the making:

"(I)f MGM were sold off today, most investment bankers don’t think it would fetch more than $1.5 billion to $1.75 billion at auction. This would mean that bondholders would recover less than $.50 on the dollar. This would be an even worse outcome."

There are people and companies who I imagine would be willing to get in the James Bond business and frontload some money to produce The Hobbit. We're not at that point yet, but Mark Cuban seems like a viable option to me. The Dallas Mavericks owner was rejected in his bid to buy the Chicago Cubs, but he certainly has $2 billion, which would give him control and get the bondholders a little more coin than they'd receive in the other two scenarios. He also has experience in the industry, with his 2929 banner and Magnolia Pictures producing The Road and Good Night, and Good Luck, most notably. Just spitballing. But with MGM apparently unable to pay its bills and move forward with its films, what does this mean for The Hobbit? It's too early to tell, though a delay seems...not unlikely. The project is so enormous that MGM can't take it on the way the figures look now. It could sell those rights to another company, but that does very little to wipe out this kind of debt.

Comments

[Krystal]

The bondholders may profit more by letting MGM go bankrupt if they've hedged their bets with CDSs (credit default swaps.) Apparently this is what happened when GM was going bankrupt; the bondholders stood to gain more money! Not a pretty thought when decades-old companies are crashing & burning.

[SEAN]

WOW fucking ridiculous..

This is company is LEGENDARY with some of the best pictures of all time while impacting culture and society....

Damnit somebody save these guys...PLEASE DONT LET THEM FAIL