MGM Allowed To Use Cash Under Bankruptcy

Film producer Metro-Goldwyn-Mayer Studios Inc. has been granted permission to operate on its cash reserves while under Chapter 11 bankruptcy, aided with funding from billionaire investor Carl Icahn.

Manhattan judge Stuart Bernstein allowed MGM to use its collateral in a statement this week. He also scheduled a December 2 hearing where the company’s reorganization plan and proposal to use its cash will be up for final approval.

The Los Angeles-based studio filed for Chapter 11 bankruptcy on November 3 with a 30-day plan to get out of bankruptcy. Representatives said the company will try to raise $500 million aferwards to continue operations, which will include new films and TV shows.

MGM attorney Jay Goffman says the company has high expectations for the plan, as they have enough favorable votes and the support of Icahn, who agreed only after having been given authority to appoint a director in the board after the reorganization.

The company listed $5.8 billion worth of debt, including accrued interest, and only $2.7 billion in assets in its filing. A large chunk of the debt was incurred after the studio went private in 2005.

The reorganization plan will attempt to eliminate some $5 billion off MGM’s debt by taking out a loan from JPMorgan Chase and converting it into new stock after the company is reorganized, according to Goffman.

The plan will also reimburse MGM’s general unsecured creditors, but equity holders will not receive anything. However, they have agreed not to seek payment and fully support the plan, Goffman added.

 

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