Creditors endorse MGM rescue deal

Makers of The Sixth Sense are set to run MGM. Photo / Supplied

Metro-Goldwyn-Mayer said creditors backed a plan to reorganise the debt-strapped Hollywood studio through bankruptcy and hand over management to the producers of The Sixth Sense.

Debt holders "overwhelmingly" approved the plan to take Los Angeles-based MGM through a streamlined Chapter 11 bankruptcy, slash its debt and make Spyglass Entertainment's Gary Barber and Roger Birnbaum the top officers, the studio said in a statement.

The vote thwarts for now efforts by billionaire Carl Icahn to merge the studio, which owes more than US$4 billion ($7.2 billion), with Lions Gate Entertainment, distributor of the Saw films and maker of television's Mad Men.

Icahn, 74, has been buying MGM's debt and is the largest shareholder of Vancouver-based Lions Gate. Lions Gate has also pursued the combination.

"MGM will now move expeditiously to implement that plan, which will dramatically reduce its debt load and put the company in a strong position to execute its business strategy," the studio said.

MGM is one of the companies co-producing The Hobbit, alongside Warner Bros and its New Line Cinema division.

In a streamlined or prepackaged bankruptcy, a company negotiates terms of reorganisation with its key stakeholders before filing for Chapter 11 protection, allowing proceedings to finish in weeks or months rather than years.

Under the plan, creditors would exchange debt for about 95 per cent of the equity when the studio emerges from bankruptcy. Owners of Los Angeles-based Spyglass, an independent producer, would get about 5 per cent of their films to MGM's library.

Lions Gate has offered MGM's creditors a package of stock and debt valued at about US$1.7 billion. Under that plan, creditors would receive 55 per cent of the equity of the combined firm plus US$500 million in new debt.

The studio aims to win court approval for the Spyglass plan by December and to raise US$500 million to produce films upon its exit from Chapter 11, said a person with knowledge of the situation who was not authorised to speak publicly about the agreement.

The MGM plan could still face opposition from Icahn, who controls more than 10 per cent of MGM's debt, the person said. Creditors had negotiated with Icahn before the final vote, the person added.

MGM spokeswoman Susie Arons declined to comment beyond the statement. Icahn did not respond to requests for comment. Peter Wilkes, a spokesman for Lions Gate which is run from Santa Monica, California, also declined to comment. Officials from Spyglass could not be reached.

- BLOOMBERG