Goldwyn caught in crunch

The clock is ticking for the Samuel Goldwyn Co., the film and TV house controlled by the 69-year old son of the eponymous Hollywood legend. The company has less than a year to find a new equity partner or else face almost certain breakup by its bankers.

Goldwyn disclosed on June 15 a $20 million loss for the year to March 30 and a looming liquidity crisis that threatens its ability to survive. Struggling under a $62 million debt load and a string of costly film and TV failures, Goldwyn has to restructure its debt and raise new equity by April next year.

Goldwyn clearly has been struggling for several months. While the success of its syndicated TV show “American Gladiators” and its film releases such as “Much Ado About Nothing” helped keep it profitable in the 1993 and 1994 fiscal years, the well of hits ran dry in the fiscal year just ended.

Instead it had some costly failures, such as the syndicated TV show “Wild West Showdown” and the film “Oleanna.” Some of those were written down in the third quarter, but Goldwyn wrote down a lot more in the fourth quarter, including films released after the end of the fiscal year, such as “The Perez Family.”

One industry source said Goldwyn made a fatal error with its heavy marketing and distribution push of “The Perez Family.” The indie opened the pic in 928 theaters nationwide, which is considered a major release for the company. Goldwyn also supported it with a sizable TV and print advertising campaign. As of June 12, the pic has grossed just $2.6 million at the box office compared with its reported $10 million cost.

“In other times they would have been more conservative with that film and lost a lot less money,” said the source. “It was embarrassing, which was a little uncharacteristic. It was a desperation kind of thing. They needed cash or a hit.” The poor performance of Goldwyn’s releases coincided with an increase in Goldwyn’s overhead, which some outsiders attributed to the company’s spending on its upcoming syndicated program “Flipper.” Goldwyn president/chief operating officer Meyer Gottlieb denied “Flipper” had been a cause of the financial problems however.

Big loss

Whatever the cause, Goldwyn lost $12.7 million in the quarter, vs. $1.9 million a year earlier. It lost $20 million for the year, compared with a profit of $2.2 million a year earlier.

Those losses undermined Goldwyn’s finances, already straining under a heavy debt load. Despite having reduced its debt from $95 million to its present level in the past three years, Gottlieb admitted that the company and the banks believe the company “is overleveraged” and he wants to bring it down to $50 million. “It’s hard to say that they’ve failed at what they’ve done,” says another studio exec. “They’re just undercapitalized.”

As a result, Gottlieb says he and the company’s investment bankers are “in the early stages of conversations” with potential strategic partners to raise up to $40 million in new equity and a similar amount for co-production of film and TV product.

Gottlieb denied speculation that the entire company, or individual assets, were for sale.

But industry honchos on June 16 said Goldwyn may have to sell assets, such as its 121-screen Landmark Theaters, to stay alive. Said one rival studio exec, “The theaters have contributed a nice amount of cash.”

But the theaters are mortgaged to the company’s bankers, and banks would be reluctant to sell assets except as a last resort. Bankers said Goldwyn would not get the best price for any assets it sold in this sort of environment.

As well as looking for new capital, Goldwyn is planning an internal reorganization to cut costs, which Gottlieb said will entail a small number of job cuts.

Goldwyn’s announcement stunned Wall Street and sent its stock price plunging 33% June 15 to $5.63, although it recovered slightly June 16 to close at $6.06. While rumors had circulated in Hollywood in recent weeks that Goldwyn was having some financial problems, they had not reached Wall Street. One major institutional shareholder said he had been unaware of the problems until the announcement.

SEC filings show just how Goldwyn’s debt load crimped its ability to operate over the past couple of years. According to its 1994 annual accounts, just one of the company’s bank loans required principal repayments of $250,000 every month, quarterly repayments of $1 million and a final repayment of $7.5 million by Dec. 31. Another loan required $2.5 million principal repayments every quarter from March 31 of this year. These were on top of interest payments and repayments due under a much bigger revolving line of credit.

Deal over

The company was hoping to replace its credit facility by last fall, the filing said. But those hopes fell apart under the pressure of the operating performance and resistance from bankers to new loan terms. Gottlieb said that last October its main banker, Bank of America, decided to delay plans to syndicate a new facility after it was told by Goldwyn that the operating results were going to be bad.

But people close to the deal said that even before this, Goldwyn had been unable to interest Chemical Bank in putting together a new syndicate.

Sources said Chemical advised Goldwyn to accept an aggressive proposal from BA because Chemical felt Goldwyn already had enough debt on its balance sheet. Sources added that BA withdrew the loan proposal from the market because it met resistance from lenders.

In the end BA extended its loans to April next year and gave the company an extra $15 million in credit, after negotiating pricing changes, Gottlieb said. Wall Streeters speculated that BA might have felt it had little choice but to extend more money to the company if it had any hope in recovering its existing exposure.

The credit line increase raised the hopes of shareholders that Goldwyn’s problems were not too severe. Indeed, Gottlieb insisted, “There is no contemplation of a bankruptcy filing.”

But he has yet to demonstrate that he can interest anyone in injecting money into Goldwyn.

And even if the money were offered, Goldwyn’s underlying problems may not go away. One source says the arthouse nature of its film releases reduces the return even of hit films, so the profit from one hit doesn’t cover the losses from those that don’t do well.

Dan Cox contributed to this report.

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