Bondholders May Challenge MGM Buyout

The trust agent for $250 million in MGM-Pathe Communications Co. bonds has demanded that the financially strained studio demonstrate by March 1 that its complex merger financing last year did not violate debt agreements.

The action was taken by New York-based Bankers Trust Co. at the request of half a dozen dissident MGM-Pathe bondholders, one of the holders said.

Those holders fear that last year’s sale of MGM film rights for about $700 million to raise money for Pathe Communications Co.’s $1.3-billion purchase of MGM/UA Communications Co. may have violated bond agreements that restricted MGM/UA’s ability to sell assets for the benefit of its shareholders.

One holder said the letter was intended to force more detailed disclosure of the deals by MGM-Pathe. He added that some holders felt that the sale of film rights and the subsequent collapse in MGM-Pathe bond prices might become grounds for a fraudulent conveyance suit against MGM/UA’s former shareholders, including majority shareholder Kirk Kerkorian.

An MGM-Pathe spokesman said the studio had already sent Bankers Trust a reply pointing out that the bonds were strengthened by assets, including theaters and a film library, that Pathe brought to the merger. Spokesmen for Kerkorian and Bankers Trust declined to comment.

Bankers Trust is an agent representing holders of MGM-Pathe’s 13% bonds maturing in 1996. Those bonds have traded lately for about $320, down sharply from their $1,000 face value.

Another $150 million in 12.625% bonds due 1993 have traded for about $450 per $1,000 of face value. A spokesman for Mellon Bank Corp., the Pittsburgh-based trust agent for that bond issue, declined to say whether his company contemplated a step similar to that taken by Bankers Trust.

Italian investors Giancarlo Parretti and Florio Fiorini, MGM-Pathe’s co-chairmen, have struggled for the past several months to raise operating funds for the studio. Last week, the company delayed plans to release “Delirious” and other forthcoming films because it lacked print and advertising funds.

People close to the studio have said they expect a cash infusion from European banks or elsewhere as early as this week. Credit Lyonnais Bank Nederland officer Patrick Bastin declined Tuesday to discuss reports that his company planned to increase its lending to MGM-Pathe.