MGM, Creditors Reach Tentative Accord

MGM-Pathe Communications Co. has signed a tentative settlement with the principal group of creditors pursuing involuntary bankruptcy proceedings against the company.

The creditors, who reportedly have $15 million in claims against MGM, are to be paid in full under the agreement. Details of the talks were disclosed in a Los Angeles federal court hearing Tuesday before Judge Arthur M. Greenwald, who is presiding over the bankruptcy case.

A settlement in the case would remove the threat of MGM being liquidated and would give the studio access to a $145-million loan needed to pay its debts and finance the release of several completed films.

Attorneys for the two sides told Greenwald that a tentative settlement was hammered out during marathon bargaining sessions last weekend. All that remains to be worked out are minor details, the judge was told. Tuesday’s hearing centered on one of those details: whether Kirk Kerkorian, MGM’s former owner, should be required to submit to a deposition in the case.

Patricia L. Glaser, Kerkorian’s attorney, argued that the deposition is unnecessary under the settlement. She said it was designed to “humiliate and embarrass” Kerkorian.

But Stephen Chrystie and Elihu M. Berle, who represent the creditors, said Kerkorian’s testimony was part of the agreement to settle. “This is one of the things we did to sell this (agreement) to them,” Chrystie said.

Chrystie explained that creditors could forgo a settlement and pursue a fraudulent conveyance case against Kerkorian if they learn of possible financial irregularities in the sale of MGM. Attorneys for the studio did not object to the Kerkorian deposition.

Greenwald ruled in the creditors’ favor, scheduling Kerkorian’s testimony for Thursday. Under the ruling, the videotaped deposition of the reclusive financier will be sealed if a settlement is reached. Berle pledged it would be “thrown in the fire” under such a deal.

The bankruptcy court developments indicate that there is a strong possibility that MGM will settle the liquidation claim before a scheduled hearing in the case next week. An attorney for the entertainment company’s bank told Greenwald the settlement is “a done deal.”

MGM has been mired in financial difficulties since late last year, when Italian financier Giancarlo Parretti purchased the studio from Kerkorian for $1.4 billion. Creditors represented by Chrystie and Berle brought the involuntary bankruptcy case against the entertainment company in March, after MGM allegedly fell behind on a number of payments.

MGM has argued in court filings that it can operate successfully if the bankruptcy claim is settled. Its chief financial backer, Credit Lyonnais Bank Nederland, has agreed to lend MGM $145 million to pay off its debts and release several completed films once the case is settled. The bank also ordered Parretti to resign as MGM’s chief executive.

In reports filed Monday with the Securities and Exchange Commission, MGM revealed that voting rights to 98.5% of its common stock are held by Credit Lyonnais. The European banking giant also has authority over 89.5% of the common shares in Pathe Communications Corp., MGM’s parent. Credit Lyonnais’ investment banking arm is seeking a buyer for 40% of MGM under a deal that also allows it to sell 51% if MGM’s financial difficulties aren’t straightened out by November.

Settlement discussions in the MGM case have been under way for several weeks. One roadblock was recently removed when Century Insurance, which claimed to be owed $1.75 million, dropped out of the case. Century, a Cook Islands company, claims it is owed the funds for writing a $175-million insurance bond that allowed Parretti to complete his purchase of the studio. MGM has denied the bond was written, and Century is pursuing its claim against Credit Lyonnais.

Another hurdle involving the bank has also been cleared. At Tuesday’s hearing, lawyers said the bank has agreed to allow residual fees to be paid to film talent for one year even though it holds a first lien against all MGM revenues. Creditors who have ongoing relationships with MGM had argued that they would be denied future residual payments from the company if the bank claimed all funds.

The creditors represented in the settlement talks include Concorde-New Horizons Corp., TVC Laboratories Inc., Bill Lanese Advertising & Public Relations, Levy-Gardner-Laven Productions Inc. and the Theatrical and Television Motion Picture Special Payments Fund.