LOS ANGELES (Reuters) - Hollywood studio Metro-Goldwyn-Mayer has secured a forbearance agreement with its lenders, winning some breathing room and liquidity as it continues to grapple with looming debt payments.
The studio, which has enlisted a restructuring specialist to help turn it around, faces debt obligations of $3.7 billion stemming from its 2005 buyout, plus payments on a $250 million revolving credit facility due April 2010.
Home to a renowned film library, including James Bond movies, MGM said the forbearance agreement, which expires December 15, exempts it from interest payments of an undisclosed amount as it continues discussion with lenders to develop a new capital structure and support a long-term business plan.
“With the agreement in place, MGM has taken an important first step in ensuring that the company has enhanced financial stability and adequate liquidity to implement its business strategies,” the studio said in a statement.
“The company is appreciative of its lenders’ ongoing support. Under the terms of the agreement, MGM’s lender group has agreed not to enforce its rights or remedies arising as a result of the company’s request to not currently pay interest due on September 30, October 31, and November 30, 2009.”
Last month, MGM replaced chief executive Harry Sloan with a team that included turnaround expert Stephen Cooper and production boss Mary Parent, as the storied Hollywood studio struggles to reduce a crushing debt load.
Its debt mostly stems from its 2005, $2.85 billion buyout by a group including private equity firms Providence Equity Partners; TPG; DLJ Merchant Banking Partners, a unit of Credit Suisse; and Quadrangle Group; and media firms Sony Corp and Comcast Corp.
The group, which bought MGM from its majority owner Kirk Kerkorian, also assumed debt of about $2 billion.
Hollywood insiders believe MGM needs to be merged or sold to be successful. But asked if MGM was considering an outright sale, Parent recently told Reuters MGM was positioning itself for the long term as a production company.
Cooper and Parent, along with MGM Chief Financial Officer Bedi Singh, have been named “members of the office of the CEO.”
According to film financing experts, MGM’s operations have largely been funded recently by its library cash flow and access to $500 million of financing set up for its United Artists label, partly owned by movie star Tom Cruise.
MGM in May hired investment bank Moelis & Co to help refinance its debt and said it was talking with a steering committee of 140 creditors as part of the process.
Cash flow from MGM’s film and TV library operations finished 2008 down about 5 percent from a year ago, a source familiar with the matter previously told Reuters.
Editing by Gary Hill