LOS ANGELES | Fri Oct 8, 2010 7:16am EDT
LOS ANGELES (Reuters) - Film Studio Metro-Goldwyn-Mayer proposed a pre-packaged bankruptcy plan on Thursday that would wipe out $4 billion in debt and put the founders of Spyglass Entertainment at the helm.
MGM, which has been mired in discussions with creditors and investors to try to reduce its debt, said it had begun seeking lenders' votes for the plan of reorganization to salvage one of Hollywood's most legendary studios.
The plan provides for MGM's secured lenders to exchange more than $4 billion in outstanding debt for 95.3 percent of equity in the company upon its emergence from Chapter 11, the company said.
Any agreed restructuring should clear the way for the making of "The Hobbit," a two-part prequel to the blockbuster "Lord of the Rings" trilogy, which MGM is set to make with Time Warner Inc. The companies have yet to announce the start of production but MGM's woes had been an obstacle.
The studio, home to the James Bond and Pink Panther franchises, has struggled for years with debt after a $2.85 billion 2005 leveraged buyout by a group that included private equity firms Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners, and media companies Sony Corp and Comcast Corp.
EXPLORING ALL OPTIONS?
The deadline for the company's secured lenders to vote on the plan is October 22 unless extended. More than 50 percent of MGM's creditors who own at least two-thirds of its debt must endorse the plan for it to pass.
A majority of the company's senior secured lenders are led by JPMorgan Chase and Credit Suisse, according to Thomson Reuters data.
Following receipt of the required consent, MGM said it plans to begin the pre-packaged Chapter 11 proceedings.
MGM first began exploring options in November. It put an initial idea of selling itself outright on hold after offers for the studio from such entities as Time Warner Inc -- which had bid about $1.5 billion -- were considered too low.
On Thursday, the studio presented a plan under which production company Spyglass would contribute certain assets in exchange for 0.52 percent of a reorganized MGM. Two Spyglass affiliates, Cypress Entertainment Group Inc and Garoge Inc, will merge into MGM in exchange for 4.17 percent of the reorganized company.
Spyglass founders Gary Barber and Roger Birnbaum will serve as co-chairman and chief executive officers of MGM once it emerges from Chapter 11, as had been reported since this summer.
A source familiar with the matter told Reuters the pair were planning to ramp up both film and television production once a restructuring was complete.
A spokeswoman declined comment when asked if the studio would entertain any increased bids, but a source familiar with the matter said the auction was now closed.
(Reporting by Sue Zeidler; editing by Carol Bishopric)
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