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MGM's Chapter 11 Plan Seeks Approval This Week

MGM is expected to appear in federal court this week to confirm the company's bankruptcy plan.

The media company that is primarily known for the production and distribution of television shows and movies filed for Chapter 11 bankruptcy protection less than one month ago with the hopes of eliminating debt and reorganizing.

According to sources, the plan, if approved, will do a number of things to benefit the future of MGM, including wiping out $5 million in debt by converting a loan into stock in the reorganized company. In addition, Manhattan Judge Stuart Bernstein, who will hear and possibly approve the plan on Dec. 2, has already approved the company to seek a $500 million loan, which will be used to increase the company's operations.

Aside from eliminating debt, and possibly wiping out the equity from a $5 billion acquisition of the studio that took place in 2005, a merger may happen between Lionsgate, which is another entertainment company that works primarily with television and movie production. According to sources, Lionsgate executives were in New York two weeks ago and met with MGM executives to discuss a possible merger.

Filing for Chapter 11 bankruptcy can be a real save for a company, especially one like MGM that has assets including the entire James Bond franchise, and half the interest in "The Hobbit" films. Other assets include the MGM logo and name, and a library with more than 4,000 titles.

The object for a business that files for Chapter 11 bankruptcy protection is to create a payment plan to reorganize the company's debt. This plan is then presented to the company's creditors in court, who then typically vote on whether or not to accept the plan. In the case of MGM, the company's creditors are expected to meet on the Tuesday before the plan's hearing, where the creditors will have time to ask questions to MGM representatives. Sources claim the entire plan could move through court in less than a month.

Filing for bankruptcy can often be a complex process; however, an experienced bankruptcy attorney can help business owners decide what type of filing will work best for them.

Source: Variety, "Federal court set to OK MGM bankruptcy plan this week," Dave McNary, 29 Nov 2010

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