“The implication is that [the studio] is teetering on bankruptcy,” one source said. A band-aid was applied over the summer when CEO Harry Sloan was relegated to a non-executive role and three senior execs stepped in to take the reins. With a debt that falls just south of $4 billion, the move may have come too late.
Yesterday’s call was an appeal to creditors that interest payments on the mountain of debt be waived until February 2010, giving the studio some time and breathing room to find its footing. The whys and hows get pretty complicated, but the short version is that stockholders aren’t inclined to waive their interest payments and the bondholders — who are paid out ahead of stockholders if the worst occurs — are content to let a bankruptcy occur.
MGM’s argument is that a bankruptcy would be bad for everyone, since such an occurrence would likely result in the loss of key franchises, like James Bond. Finke’s inside sources indicate that creditors will eventually get on board with the studio’s plan, as its the best of several lousy possibilities. No one will know for sure until the studio makes a formal request for forbearance and the creditors respond.