Buyout-backed film studio Metro-Goldwyn-Mayer, which has received several first-round bids in an auction to sell itself, is considering a prepackaged bankruptcy in conjunction with a sale, sources familiar with the matter said.
The move would offer a healthier company to a buyer of MGM—which is struggling under $3.7 billion in LBO-related debt—by reducing liabilities and cleaning up its balance sheet, said the sources, who spoke on condition of anonymity because details of the sale process have not been made public.
MGM was acquired for about $5 billion in 2005 by a private-equity consortium that included
Several buyout shops and media companies, including Time Warner Inc. and Lions Gate Entertainment Corp., have put in bids for MGM, the sources said. But not all 12 companies that signed confidentiality agreements to look at MGM’s books over the past month have put in bids, they added.
The initial bids, which are non-binding, came in less than $2 billion, sources said.
Some of the buyout bidders are also talking to media companies about teaming up to make joint bids for MGM in later rounds of the process, some of the sources said. While Time Warner plans to go it alone, Lions Gate is looking to partner with a private equity firm, one source said.
If the bids come in too low, MGM’s creditors could decide to keep the company and restructure it, possibly through a prepackaged Chapter 11 filing, some of the sources said.
MGM’s lenders had extended a debt forbearance agreement until Jan. 31, which exempts the company from interest payments of an undisclosed amount as it tries to develop a long-term turnaround plan. At press time, that deadline was expected to be extended further as the auction process goes on.
—Jui Chakravorty and Anupreeta Das are Reuters correspondents based in New York.