FOR almost a year, MGM has been asking creditors holding $3.7 billion of its IOU’s to restructure maturing debt payments because it has no money to pay anybody. It doesn’t even have enough money to continue operating. Instead of going to bankruptcy court to reorganize, owners of MGM agreed to transfer ownership to the hedge fund which holds the $3.7 billion of debt owed by MGM. Now that creditors own MGM, it doesn’t have to pay back debt because all that debt has been converted into equity. So what happens next? It has to start producing movies that people want to see. To produce popular movies, it will need fresh capital to operate. It owns the James Bond franchise, agent 007, which people still want to see. Although still popular, James Bond doesn’t have the general appeal of the superhero Marvel hits such as Spiderman and Iron Man which brought in more than a billion dollars each for its new owners, Walt Disney. But the Bond movies have never brought in a billion dollars at any time. Thus, the new owners of MGM have the equipment, the facilities, and the library of franchises to create movies but they lack 2 important ingredients. They do not have the ability or talent to produce a billion dollar blockbuster movie. And, they do not have new money to produce a blockbuster even if they thought they had one. Fresh capital does not seem to be the major problem. Time Warner has offered $1.0 billion of fresh capital to allow MGM to operate in exchange presumably for a big chunk of ownership of the company. But the new owners of MGM have rejected the offer. Thus, it seems that raising new money is not the problem.
Even though creditors now own MGM, they still want to get repaid on their investment. If they are able to produce a steady stream of blockbuster hits in the future, the price of MGM shares may go up allowing MGM owners to unload their shares to recoup or even make money on their investment. Or, profits may be such as to allow a regular payment of dividends on their shareholdings. Either way or a combination of both will enable the new owners of MGM to translate certain loss of their investments to virtually nothing to recovering both principal and interest over the long haul, perhaps a decade or two. It is understandable that these new owners of MGM will take the better part of caution to bide their time to find the right set of creative talent to produce the blockbuster movies that the company so desperately needs so that it can start producing profits. Will they be able to tap James Cameron to produce a sequel to Avatar which has broken all box office records worldwide?
Once again, the adage, IT IS EASY TO BORROW MONEY BUT HARD TO PAY IT BACK, has been proven true by MGM. Because it had a track record and history of being profitable with popular movies in the past, MGM was able to borrow billions of dollars. But even a titan of the movie industry which brought us the Ten Commandments that showed us the power and majesty of God on the silver screen is unable to repay $3.7 billion of accumulated debt forcing its bankruptcy and the transfer of ownership from shareholders to creditors.
You may have found it easy enough to borrow money in the past. You are proof again that borrowing money is easy but paying it back is hard. Having a hard time paying the second trust deed and credit card debt despite your high household income? Welcome to the MGM club! Unlike MGM, you cannot transfer ownership of your life to your creditors because there is another adage applicable to you, and that is YOU OWE CREDITORS MONEY NOT YOUR LIFE! Consider a chapter 7 fresh start or a 13 reorganization bankruptcy to get rid of accumulated debt.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published May 29, 2010 in Asian Journal Los Angeles p. C5 )
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