New bank brings greater flexibility to MGM

Lion to roam free

The deed is done: Frank’s bank is out and Kirk’s is in.

Aiming to end restrictions on its ability to finance film productions and strike strategic alliances, Metro-Goldwyn-Mayer has arranged for Banc of America Securities to replace J.P. Morgan & Co. as the lead underwriter on its $1.3 billion credit facility.

Former chairman Frank Mancuso had used J.P. Morgan as MGM’s investment banker ever since his Kirk Kerkorian-backed takeover of the studio in 1996. But longtime Kerkorian ally Alex Yemenidjian replaced Mancuso atop the studio in April 1999, and Banc of America — which enjoys a long-standing relationship with the billionaire financier — was tapped to do a $720 million rights offering the following November.

Investment opportunity

Now, Banc of America has replaced J.P. Morgan atop a syndicate of about two dozen lenders that contribute to the studio’s credit facility; as a result of some accompanying changes to terms of the facility, MGM will enjoy greater flexibility on two fronts, a spokesman said. The studio will potentially be allowed to produce pricier film slates than would have been possible previously and also will be freed of restrictions on “how much the company could invest in another company,” he said.

Though MGM officials declined to elaborate, the latter change should be particularly useful as the Lion continues a high-profile hunt for a strategic partner with whom to launch specialty cable channels using the MGM film library.

The studio is known to have engaged both Starz Encore and Rainbow Holdings in just such talks already, but any deal announced under terms of the original credit facility would have required elaborate waivers from MGM lenders. Under the newly streamlined credit facility, MGM is freed of previous restrictions on how much cash or even how much of its library can be earmarked for a joint venture, according to a well-placed source.

Officials at J.P. Morgan and Banc of America were not immediately available for comment.

“The changes free (MGM) to go after the kind of strategic partner that’s been discussed,” a source said. “Getting the necessary waivers would have been a major ordeal to obtain otherwise.”

Talks with lenders to revise the credit facility were commenced about three months ago, the source estimated. There was said to be little resistance to the changes, because MGM has continued to improve its balance sheet under the new regime of Yemenidjian and vice chairman and chief operating officer Chris McGurk.

Cash balance of $280 mil

In a brief announcement of the changes to its credit facility, MGM noted that its cash balance stands at $279.2 million, with $600 million in unused credit capacity. A year ago the studio had only $10 million in cash and $124 million in untapped credit. Similarly, its debt-to-capital ratio has improved to 25% from 49% a year ago.

“The financial flexibility in our amended credit facility is in recognition of MGM’s strong financial condition and will afford us the opportunity to aggressively pursue our planned growth initiatives,” Yemenidjian observed.

“We are delighted to lead the MGM credit facility at a time when the company is in its strongest financial position in decades and possibility in its entire 76-year history,” said Robert Lagace, managing director of Banc of America’s entertainment and media group, in a statement.

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