MGM Bankruptcy Drama Ends with Restructuring

As reported by the Wall Street Journal, Jay Goffman, the man responsible for the dramatic restructuring of MGM Studio's bankruptcy, appeared in court this past week to deliver his report for a judge's approval.

The "prepackaged" bankruptcy had been approved in advance by almost all of MGM's creditors. Two thirds of the studio's debt being held by creditors, and more than half held by individual debt holders, must vote in favor of the reorganization plan before it can be approved by a judge.

Goffman announced that he had over 80% approval before going to court. Lenders are forgiving nearly $5 billion in debt in exchange of studio ownership from the law firm of Skadden, Arps, Slate Meagher and Flom.

In working with lawyers, bankers and other restructuring professionals, Goffman said, "Like any great drama, there are lots of other players. I've never had a restructuring where people worked better together, more cohesively."

Stephen Cooper, a specialist who worked with Enron, LyondellBasell and Krispy Kreme after their bankruptcies, was also credited for his tireless efforts on the MGM restructuring by Goffman. 

The judge, however, was quick to query if Cooper was involved with the three companies named before or after their bankruptcies. The courtroom laughed at the question and Goffman replied, "After."

In 2005 MGM Studios was known for a leveraged buyout that failed and then the studio failed to repay it's debts.  Declining DVD sales and few hit movies were blamed.  Goffman explained, "We didn't have great luck with certain motion picture releases."

Gary Barber and Roger Brinbaum, Spyglass founders, took over management of the studio and merged some older films with MGM's library of films. 

Last summer Lions Gate made a merger proposal but their largest shareholder, Icahn, said he would litigate against the deal being made.  Goffman contended that since Icahn was in the process of suing Lions Gate executives, JP Morgan and hedge funds Anchorage and Highland, MGM's creditors, decided to veer away from any deals with Lions Gate.

By the fall Lions Gate made another offer.  But this time MGM wanted, in writing, reassurance that Icahn would support the merger this time.  Goffman said, "They were not able to do that, so those discussions did not proceed."

Icahn then revealed that he already held more than $400 million of MGM's debt.  He wanted the merger with Spyglass stopped and a return to the Lions Gate merger - the same one he had been so strongly against before. Icahn then started to buy out other creditors in his plan to thwart Spyglass, but he was unsuccessful.

In regards to Icahn's plans Goffman reported, "I'm happy to tell you, Your Honor, all of those failed."

Icahn remained a holdout but MGM had enough votes to get their prepackaged bankruptcy.  And then Icahn did finally agree to vote for the plan - which made almost every creditor in agreement. 

Goffman concluded his presentation to the judge by stating how grateful he was to Providence, TPG, and other former MGM equity holders for their agreements.

The judge then approved almost all of MGM's plans to continue to pay its employees.  The hearing to confirm the reorganization is set for December 2.

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