Labor guilds set the clock ticking on Carolco Pictures Wednesday by serving a 30-day notice of default on the troubled indie, which missed a $ 3 million payment due the guilds that day.
The payment was the first due from a $ 15 million promissory note, guaranteed by all the company’s assets — a guarantee that ultimately gives the guilds legal right to foreclose and force Carolco into bankruptcy.
“We have sent a notice of default and if payment is not made we intend to exercise all our legal rights in 30 days from now,” said Jay Roth, an attorney which represents the Directors’ Guild of America, the Writers Guild and the Screen Actors Guild.
The guilds are secured creditors in all the assets of the company.
Guilds forcing an indie into bankrutcy is unprecedented, said sources.
Roth waved a red flag for other creditors. “To the extent the bondholders are holding up the restructuring, they should consider what their alternatives in terms of the priorities of the various creditors.”
Carolco’s 14% notes closed at 89 Wednesday, up from 86 7/8 Tuesday, on light trading. “The market expected there wasn’t going to be an interest payment,” said one analyst, explaining the gain despite other interest payments missed Wednesday.
As anticipated, Carolco Wednesday missed a $ 35.3 million principal and interest payment to holders of its 14% senior notes, and an interest payment on its 13% senior subordinated notes, which have a principal amount of $ 16.1 million.
As reported, the company’s strategic partners — Japan’s Pioneer, Italy’s Rizzoli, France’s Canal Plus and Metro-Goldwyn-Mayer — have essentially agreed to forego all payments until the Carolco’s proposed restructuring and $ 260 million recapitalization is completed (Daily Variety, May 10).
Carolco reiterated Wednesday it may have to close shop if creditors reject its proposed restructuring.