For the past few months, all we’ve heard out of MGM was development news related to its Fame movie, The Three Stooges and The Matarese Circle. It seemed like the Lion was getting ready to roar back as an independent producer next year.
But that might not be soon enough for the studio’s debt holders. Although MGM generates roughly $1 billion in annual revenue, its free cash flow is only believed to be $500 million a year, which isn’t enough to repay its $3.5 billion in debt, due next April.
So, the studio’s owners (a Sony-led private equity consortium including Providence Equity Partners, TPG and Comcast) have formed a creditors committee and hired investment bank Houlihan Lokey to explore restructuring options. MGM’s been pursuing the same for months through its own financial advisor, Moelis & Co.
For years, the studio’s been generating revenue from its extensive library, but as DVD sales have dwindled that source of income has been running low. The studio also has a number of high-profile movies in the works, but they keep getting pushed back and, with the exception of this fall’s Fame, won’t be released until next year.
Cash-flow concerns have sparked talk of auditors’ potentially issuing a “going concern” warning by the end of June. Process insiders said those working on restructuring options are on high alert that business as usual is over for the Century City-based studio. But concocting a palatable solution for MGM — whose operations have swelled in recent years to an estimated $150 million in corporate overhead — may or may not prove doable, even for the smartest of consultants.
However, THR adds, “a well-placed source stressed that the issuance of a going-concern warning is a theoretical possibility but is considered unlikely. Short-term debt payments are relatively nominal, and MGM’s revolving credit facility through JPMorgan Chase won’t expire until next April.”
Options being pursued include attracting new capital, selling studio equity, reducing operations and even, as a last resort, liquidating the company. But these are tough times to be seeking movie money and although MGM has been on the hunt for new capital for months, it hasn’t found any yet.
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