MGM Seeks Quick Dismissal of Bankruptcy Suit

MGM-Pathe Communications Co. has told a federal judge in Los Angeles that $365 million of its bonds will become immediately due if an involuntary bankruptcy petition against the studio is not dismissed by May 28.

The financially troubled studio also disclosed that $69 million of a new $145-million loan expected from Credit Lyonnais, its principal lender, will be used to pay overdue bills.

The payments would leave the company only $76 million to help fund ongoing operations. The studio needs funds to release about a dozen substantially completed movies and faces a bond interest payment of more than $20 million in June.

The disclosures came as part of a motion asking the U.S. District Court to accelerate action on the involuntary proceeding by shifting jurisdiction directly to itself from the Bankruptcy Court.

Normally, the District Court conducts hearings only on disputed decisions by a bankruptcy judge. Withdrawal directly to the District Court can speed a proceeding, but in effect eliminates one appeals step for the participants.

An attorney for six petitioners who have asked that MGM-Pathe be placed in bankruptcy said he plans to oppose the studio’s request.

In a declaration submitted to the District Court, MGM-Pathe Vice Chairman Stephen D. Silbert said that a default provision in MGM-Pathe’s bond agreements would require the studio to pay off its bonds in full if the petition is not dismissed within 60 days from its filing on March 29. The studio clearly lacks the funds for such a massive bond redemption.

Credit Lyonnais’ promised bailout loan is conditioned on dismissal of the bankruptcy petition.

Individuals familiar with the situation have said the studio is willing to settle debts with five of the six creditors who filed the petition. But a settlement has been held up, among other things, by the studio’s insistence on pursuing further litigation over a $1.75-million fee claimed by one petitioner, Century Insurance Ltd.

According to Silbert’s declaration, the Credit Lyonnais loan will become due in just one year, but may be extended for an additional year if the studio does not default on its terms. People familiar with the loan have said that the bank had refused to grant the loan until MGM-Pathe’s principal owner, Giancarlo Parretti, agreed to step down as chairman earlier this week.

In asking for the accelerated proceeding, Silbert said, “Every day that this case is pending exacts a terrible toll up on MGM-Pathe’s ability to resume and continue” its movie and television business.