Orion Stock Drops on Restructuring Plan

Orion Pictures Corp.’s stock and junk bonds plunged Wednesday as investors continued to slam the ailing firm’s restructuring plan.

Many bondholders contended that Orion’s majority owner, billionaire John Kluge, had proposed a financial restructuring that was blatantly good for him and grossly unfair to them. “It stinks,” one angry West Coast bondholder said.

Orion’s junk bonds tumbled as much as $131 per $1,000 face value. The firm’s four junk bond issues now trade for 36 to 53 cents on the dollar, down from 60 to 70 cents just last week.

Orion’s stock slumped $1 a share to $6 after trading as low as $5.375. It fell $1.625 Tuesday.

Late Monday, Orion proposed exchanging $285 million in debt, including its four junk bond issues, for new debt and stock. Each $1,000 face value of a junk issue would be exchanged for $750 principal value of a zero-coupon (non-interest-paying) bond maturing in 1998. In addition, Orion would issue 37 to 42 new shares of stock for each bond.

Saddled with debt, the movie producer has been marginally profitable for years. Despite the huge successes of its recent releases “Dances with Wolves” and “Silence of the Lambs,” Orion last year lost $62.9 million, or $3.17 a share, on revenue of $584 million.

The company said Monday that its exchange offer--which would pare a crippling annual interest bill of $55 million--was the “cornerstone” of a turnaround plan.

But many bondholders argue that Orion is asking them to take a huge hit, while the 76-year-old Kluge, who owns 68% of Orion’s stock through his Metromedia Co., would benefit even with dilution of his stake. “It’s definitely a cram-down,” said junk bond manager Ron Lout at Financial Programs mutual funds in Denver.

One Los Angeles money manager, requesting anonymity, said the market reaction to the exchange plan is a strong signal that Orion will fail to get the required 80% of bondholders to agree. “I don’t think this will fly in a million years,” he said.

“The solution to Orion’s problems is real simple--Kluge puts money into Orion,” the money manager said. “This man has $3 billion to $4 billion of worth, and much of that is liquid.” Kluge has been criticized in recent years for failing to bolster Orion’s finances, despite his controlling stake.

Though bondholders admit that Orion risks bankruptcy if it can’t complete the debt exchange, some said they prefer bankruptcy to the bond swap.

However, some junk bond traders noted Wednesday that bondholder outrage often amounts to posturing and that Orion still may be able to strike a deal, albeit a sweetened one.

Muddying the outlook is that First Executive Corp., the defunct California insurer now under state control, is believed to be one of Orion’s biggest bondholders.

An Orion spokeswoman said the company had no comment on the market reaction.

Meanwhile, Standard & Poor’s Corp. downgraded Orion’s bond rating to CCC- from CCC+. The rating is only two notches above default.

Orion’s Plunge How Orion Pictures’ junk bonds fared in trading Wednesday:

Bond Wed. close* Change 12.5% due ’98 $531.25 -$78.75 10% due ’94 $400.00 -$100.00 10% due ’99 $360.00 -$131.25 11% due ’98 $370.00 -$107.50

* per $1,000

Source: Reuters