Friday, October 02, 2009

MGM Lives, Hobbit Stays

Movie studio MGM has had some financial trouble lately that led to concerns that could affect their participation in making The Hobbit films. Thanks to a new agreement with their creditors, the studio may have bought enough time to stay afloat and complete their partnership on the Hobbit films which is at this point is probably critical to the studios continued survival.

From The Hollywood Reporter:

The investment firm leads a lenders steering committee that has been agitating for a dramatic restructuring of the Lion's operations and its ownership structure. In exchange for an agreement to limited interest forbearance, J.P. Morgan secured a few changes in existing debt terms.

Concern over MGM's hold on "Hobbit" is at the heart of the activity. In a 50-50 rights partnership with Warner Bros.' New Line unit, two "Hobbit" pics are being developed.

The first "Hobbit" aims for theatrical release in 2011, with Guillermo del Toro on board to direct that and a sequel. Peter Jackson, Fran Walsh, Philippa Boyens and del Toro are writing scripts for both and are expected to deliver the first screenplay by the end of November.

The move to delay interest payments until Dec. 15 wasn't motivated by any immediate fears of insolvency at MGM, as a recent company audit showed cash flow should be sufficient to keep the lights on for at least another year.

Eventually, once equity is shifted from the Lion's current owners to the lenders group, an auction likely will be held for the studio. Keeping its 50% hold on "Hobbit" -- broadly viewed as a potential big moneymaker -- would bolster interest in bidding on the Lion.

MGM execs hope to corral at least $40 million for its "Hobbit" activities. The requested interest deferrals amount to more than $50 million.

Current MGM owners include investment firms Providence Equity and TPG, Sony and Comcast.

A banking source said some of the tweaks to debt terms will begin to dilute those owners' current equity. A much more dramatic shifting of equity is expected over coming months as lenders agree to convert debt to equity.

Once the lenders become owners, that group likely would conduct an auction for the assets. Nobody sees the lenders group as a long-term operator of MGM.
I do not know a lot about banking but it seems the goal is to essentially shore up MGMs bottom line so the studio can be sold piecemeal at a higher value. It is possible the studio could be sold as a single unit but more than likely a bidding war is going to erupt on many of its franchises, especially James Bond, and its library of movies and television properties. It seems like the storied history of this studio is going to come to an end very soon.

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