UPDATE: With all the James Bond news (Sam Mendes About To Be “Consultant” On Bond #23), it’s high time for me to post an update on MGM as it teeters on the brink of bankruptcy. I’m told things are progressing as expected. To date, approximately a dozen parties have signed the Non-Disclosure Agreements (but not News Corp), with a few more expected, and are working toward a January 15th date for submitting their indications of interest. The potential bidders are a “healthy” mix of financial players and studios after the embattled film studio with its crushing $4 billion debt sent the confidentiality agreements to about 20 interested parties including News Corp, Time Warner, Lionsgate, and Sony. The NDAs are a precursor to letting potential bidders examine its books. MGM’s debtholders who’ve lost patience with the studio want to break up the company and sell off its valuable library. But other creditors would first like to see how bidders value the company if left whole. MGM has consented to partnerships among the potential bidders and is facilitating and allowing consortiums to form. “There are not 12 bidders. There are 12 groups that have signed an NDA,” one of my insiders explains. “For all we know, people can sign NDAs and can kick the tires — and only two will make bids. We are all dealing directly with the bankers so nobody really knows for sure who is bidding. If somebody tells you they know, they are simply guessing.
“The company would like bids to be in by 1/15 but they don’t expect the bids to be in until the end of the month. If somebody is serious about this process, they are going to have to have access to a lot of cash. Right now, Time Warner is sitting on $9 billion of cash. For those who need to come up with a lot of cash, this is a tough market to access borrowing. (Look at the difficulty for Dreamworks.) Although entities likes News Corp, TCI, etc can borrow, they will simply go further in debt.”
The forbearance agreement between MGM and its lenders expires at the end of this month. More likely than not, sources tell me, the creditors will extend the forbearance agreement through February. “The company probably won’t know untill then whether there is an offer that makes sense for the creditors or whether they have to go to Plan B,” one of my insiders explains. MGM faces debt obligations of $3.7 billion stemming from its 2005 buyout — (by a group including private equity firms Providence Equity Partners and TPG, and media firms Sony and Comcast for $2.85 billion, and assumption of $2 billion in debt) — plus payments on a $250 million revolving credit facility due April 2010.