Film studio Metro-Goldwyn-Mayer proposed a pre-packaged bankruptcy plan that would wipe out $4 billion (€2.86 billion) in debt and put the founders of Spyglass Entertainment at the helm.
MGM, which has been mired in months of discussions with creditors and investors to try to reduce its debt, said it had begun seeking lenders' votes for the plan of reorganisation to salvage one of Hollywood's most legendary studios.
The plan provides for MGM's secured lenders to exchange more than $4 billion in outstanding debt for 95.3 per cent of equity in the company upon its emergence from Chapter 11, the company said.
Any agreed restructuring should clear the way for the making of The Hobbit, a two-part prequel to the blockbuster Lord of the Rings trilogy, which MGM is set to make with Time Warner. The companies have yet to announce the start of production but MGM's woes had been an obstacle.
The studio, home to the James Bond and Pink Panther franchises, has struggled for years with debt after a $2.85 billion 2005 leveraged buyout by a group that included private equity firms Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners, and media companies Sony Corp and Comcast Corp.
The deadline for the company's secured lenders to vote on the plan is October 22nd unless extended. More than 50 per cent of MGM's creditors who own at least two-thirds of its debt must endorse the plan for it to pass.
Following receipt of the required consent, MGM said it plans to begin the pre-packaged Chapter 11 proceedings.
MGM first began exploring options in November. It put an initial idea of selling itself outright on hold after offers for the studio from such entities as Time Warner - which had bid about $1.5 billion - were considered too low.
Yesterday, the studio presented a plan under which production company Spyglass would contribute certain assets in exchange for 0.52 per cent of a reorganised MGM. Two Spyglass affiliates, Cypress Entertainment Group and Garoge will merge into MGM in exchange for 4.17 per cent of the reorganised company.
Spyglass founders Gary Barber and Roger Birnbaum will serve as co-chairman and chief executive officers of MGM once it emerges from Chapter 11, as had been reported since this summer.
A spokeswoman declined comment when asked if the studio would entertain any increased bids, but a source familiar with the matter said the auction was now closed.
Reuters