MGM studio talks to Moelis, others on debt-source
By Sue Zeidler
LOS ANGELES, March 18 (Reuters) - Hollywood studio Metro- Goldwin-Mayer is talking with several financial advisors, including Moelis & Co, about refinancing some of its $3.7 billion debt, but has not hired any firm, a source with knowledge of the situation said on Wednesday.
Hollywood bankers estimate MGM is paying north of $250 million a year in interest on the debt, most of which must be repaid in 2012.
They believe MGM's private equity investors are pursuing a reorganization with noteholders in advance of maturity to maintain more control over the process and leverage over creditors, as the studio's value deteriorates with declining cash flow.
Merger specialists have said MGM could be worth $2 billion to $2.5 billion in the current market.
"They're speaking with several consultants and Moelis is one of them. No deal has been signed and nobody's been retained," said the source, who was not authorized to speak publicly on the matter.
MGM declined comment. Moelis was not immediately available.
MGM is owned by a consortium of companies, including private equity firms TPG Capital LP [TPG.UL] and Providence Equity Partners, Sony Corp (6758.T) and Comcast Corp (CMCSA.O), which paid about $5 billion in debt and equity in September 2004 to buy the then-publicly traded studios from its majority owner, billionaire Kirk Kerkorian.
The studio, which has repeatedly said it was not for sale, retained Goldman Sachs in August and said it was exploring "enhancements" to its long-term capital structure, and that those enhancements might include debt refinancing.
"MGM is liquid and solvent and looking for opportunities to take advantage of the discount in their debt, but nothing in the debt structure requires them to make any changes," the source said.
Unconfirmed reports billionaire financier Carl Icahn has been buying up MGM debt has sparked speculation the activist shareholder may try to push for a combination of MGM with Lions Gate Entertainment Corp (LGF.N), another studio Icahn has been seeking influence over.
Rumors of MGM's potential sale also surfaced this past summer with the departure of producer Paula Wagner from MGM's United Artists studio in August.
Wagner, who is a movie producing partner with actor Tom Cruise, was chief executive of UA, but left to produce movies again. UA, in which Cruise and Wagner both have stakes, last year secured $500 million in financing through Merrill Lynch to fund 15 to 18 movies over the next five years.
The source said MGM Chief Executive Harry Sloan has known Ken Moelis, who runs the highly regarded investment bank that provides capital raising solutions related to mergers, restructurings and other strategic matters, for over 20 years.
"Although MGM has an enormous and valuable library, the premium today is on liquidity and if refinancing is not available from traditional sources, it would not surprise me at all to see even major studios seeking relief from alternative debt providers," said David Molner, chairman of Aramid Capital Partners, referring to hedge funds or other "lenders of last resort."
MGM has four upcoming movies including Fame, Cabin in the Woods, Hot Tub Machine and Zookeeper. (Editing by Andre Grenon)
