Lions Gate makes bondholder deal to thwart Icahn

Lions Gate Entertainment Corp. made an eleventh-hour deal Monday with two bondholders that will keep about 28% of $316 million in convertible debt out of the hands of activist shareholder Carl Icahn. The company timed the private transaction to the expiration of Icahn’s offer to investors to pay a premium for tendering their bonds.

It could not be immediately determined how many bondholders took Icahn up on his bid. The billionaire investor, who has hinted that he may wage a proxy war for the Santa Monica movie and TV studio, could extend or pull his offer if he does not generate sufficient interest. Icahn did not return a call for comment.

Under the deal struck with bondholders, Lions Gate exchanged $66.6 million of new debt for existing debt held by holders of its 3.625% senior subordinated notes. The new debt pushes back the “put date” to 2015 from 2012 and lowers the strike price to $8.25 from $14.28 per unit. A put date is when bondholders can force Lions Gate to buy back its debt.

In addition, one of two bondholders agreed not to tender $24 million of 2.937% convertible senior subordinated notes, bringing the total amount kept out of Icahn’s reach to $90.6 million, or about 28% of the company’s $316 million in public debt.

By pushing back the date when Lions Gate would be forced to repurchase some of its debt, the company saves money in the near term. Note holders get the right to convert their bonds at a lower price.

“We had an opportunity to do a private transaction on terms that were attractive for the bondholders and for the company,” Lions Gate Vice Chairman Michael Burns said. “Bondholders get a better trading instrument and lower strike price, and Lions Gate gets a three-year extension on the first put date.”

Unclear is whether John Kornitzer, Lions Gate’s largest bondholder, was one of the two bondholders with whom Lions Gate reached an agreement. The company declined to identify the bondholders involved in the deal, and Kornitzer did not respond to a call or e-mail for comment. In a recent interview with The Times, Kornitzer, who holds about $90 million worth of bonds, said he would not tender them to Icahn.

Icahn could convert his debt into common stock and boost his current 14.5% ownership stake in Lions Gate. But that is problematic because if any shareholder exceeds 20%, it could trigger a call on Lions Gate’s revolving credit line and accelerate payment of the company’s bonds at 100 cents on the dollar.

Icahn, in a regulatory filing last month, questioned whether Lions Gate’s current liquidity would be “sufficient enough” to meet its obligations if its credit facility fell into default prompted by a change of control at the company.

Although some have speculated that Icahn is using the convertible bonds as a back door to gain control of Lions Gate, it could simply be a savvy financial play. If Icahn were to hold the bonds and not convert them to equity, he would collect an interest rate of about 17%.

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claudia.eller@latimes.com