Metro-Goldwyn-Mayer expects audit report next week

By Sue Zeidler

LOS ANGELES (Reuters) - Results of a key independent audit of Metro-Goldwyn-Mayer are due next week and sources expect it to show that the troubled studio is financially sound enough to continue operating.

MGM, which is scrambling to refinance $3.7 billion in debt, had said results of an audit, conducted by the Bank of Montreal beginning in June, are due around July 14.

Two sources familiar with the studio, home to the James Bond franchise, said they expect MGM will be deemed a "going concern," implying that it can continue operations in the foreseeable future.

A source familiar with the studio said there was no reason to believe MGM would not get the going concern status, based on its rich library valuation.

The source said its film and TV library operations generated about $500 million in cash flow in its latest fiscal year ended March 31, down about 5 percent from a year earlier.

MGM declined to comment.

Bank of Montreal representative were not available for comment.

Expectations for a thumbs-up "going concern" opinion was first cited on Nikki Finke's DeadlineHollywood.com blog. Such an opinion would be a huge triumph for the studio because if it is not deemed to be a going concern, MGM could potentially see some of its debt covenants triggered or it could be forced to declare itself insolvent.

MGM faces a payment of $250 million in April 2010 on its revolving credit, with the $3.7 billion in term debt due in June 2012.

The debt largely stems from a 2004 acquisition of MGM by an investor group. MGM is owned by a consortium of companies, including private equity firms TPG Capital LP and Providence Equity Partners, Sony Corp and Comcast Corp, which paid about $5 billion in debt and equity in September 2004 to buy the then-publicly traded studio from its majority owner, billionaire Kirk Kerkorian.

Rumors of MGM's potential sale surface frequently, with merger specialists pegging the studio to be worth $2 billion to $2.5 billion, but MGM has repeatedly said it was not for sale.

One Hollywood executive said private equity fund Qualia Capital LLC has recently expressed interest in MGM but he did not believe it has had any talks with the company.

A Qualia spokesman declined to comment.

Takeover rumors also were rekindled this past spring when unconfirmed news reports surfaced that billionaire financier Carl Icahn was buying MGM debt, which sparked speculation he may push for a combination of MGM with Lions Gate Entertainment, another studio over which Icahn has sought influence.

Sale rumors also surfaced last August with the departure of producer Paula Wagner from MGM's United Artists studio.