MGM Settles With Creditors, Ending Bankruptcy Case

A federal court judge in Los Angeles dismissed bankruptcy proceedings against MGM-Pathe Communications Co. on Thursday after the company reached a settlement with its creditors.

Judge Arthur M. Greenwald ruled that the settlement fairly resolved the dispute between MGM and the court petitioners. He also noted that company cash-flow projections showing that MGM has the ability to pay all of its long- and short-term debt had not been legally challenged.

One source close to the settlement talks estimated that MGM will ultimately pay out more than $50 million under the agreement since it covers both existing debt and ongoing residual payments. Negotiations in the complex case reportedly continued until 4 a.m. Thursday as MGM sought to resolve differences with the last of the creditors.

The dismissal of the involuntary bankruptcy petition frees up a $145-million loan from MGM’s chief lender, Credit Lyonnais Bank Nederland. MGM has said it will use the money to finance ongoing operations and to pay a reported $70 million in accumulated bills.

MGM hopes to stimulate its cash flow by releasing a string of completed films, including the female buddy picture “Thelma and Louise” and the John Candy comedy “Delirious.” Chairman Alan Ladd Jr. has also appointed a new upper-management team. In court filings, the company said it will explore ways to better exploit existing assets, such as the MGM film library.

Some financial analysts remain skeptical of MGM’s chances for success, given its high debt level and its recent record of disappointments at the box office. But Greenwald said MGM’s prospects would be even gloomier under liquidation or reorganization proceedings.

In ruling that the company would be “significantly impaired” by bankruptcy, Greenwald repeated many of the arguments contained in bankruptcy expert John Hyde’s court declaration.

“Based upon the evidence presented, the continuation of bankruptcy will materially and adversely affect MGM’s prospects,” Greenwald said to a court mostly filled with lawyers.

Attorneys for both sides cheered the decision. “It’s the right result,” said Paul Aronzon, representing MGM. “This company doesn’t belong in bankruptcy. . . . It earns enough money to pay its debts. And when you combine that with bank financing, it’s solvent.”

The involuntary bankruptcy petition was filed against MGM in March, just five months after Italian financier Giancarlo Parretti’s Pathe Communications Corp. purchased the company for $1.4 billion. Credit Lyonnais subsequently removed Parretti as MGM’s chief executive in favor of Ladd. The bank also put 40% of the company up for sale, with an option to increase the percentage to 51% in November.

Stephen Chrystie and Elihu Berle, who represented the principal group of creditors, said their clients were relieved that the issue had been settled. Court documents show that MGM has agreed to pay the two attorneys $165,000 under the terms of the court agreement.

Creditors covered by the settlement include Concorde-New Horizons Corp., Turner Entertainment, Goldcrest Films & Television Ltd., Danjaq, CSLM Entertainment Ltd., the Theatrical and Television Motion Picture Special Payment Fund, Madata Corp., Levy-Gardner-Laven Productions, Bill Lanese Advertising & Public Relations, Bartel Design Group, the Hollywood Reporter, Kristan & Co., Alberto Grimaldi, PEA Films Inc., DDB Needham, the Writers Guild of America West, the Directors Guild of America, the Screen Actors Guild Inc., the Motion Picture Industry Pension Plan and the Motion Picture Industry Health Plan.

Another party to the case, Century Insurance Ltd. of the Cook Islands, voluntarily dropped its claim. The company, which says it is owed $1.75 million, is pursuing a separate lawsuit against Credit Lyonnais.