Relativity Media has bought about $200 million in MGM debt securities at about 50 cents on the dollar over the past few months in its bid to buy up enough of a stake in the company to force a bankruptcy and take control of the studio.
The money has come from Elliott Associates, the main financial backer of Relativity, said executives with knowledge of the strategy.
Relativity’s Ryan Kavanaugh is angling to buy enough of the debt to be able to force the company into bankruptcy. In bankruptcy, the company would be allowed to shed its current burden of $3.7 billion in debt, while leaving assets such as its film library in place.
Kavanaugh, who has built Relativity into a major player in
The financier has been seeking to buying up bonds from holders such as Carlyle Group or Sequoia for about half their face value. His intention is to buy up about half of the bonds, which currently total about $1.9 billion in face value.
All of this is ongoing as MGM is working with its investors, debtors and current management to restructure its $3.7 billion in debt.
The studio, owned by a consortium including Sony, Comcast and TPG Capital, has amassed a crushing load of debt, a portion of which comes due as early as 2010.
Most of the debt, which incurs an estimated additional $250 million per year in interest fees, is due in 2012. The studio recently hired investment bank Moelis & Co. to help restructure the debt with a committee of creditors led by JP Morgan Chase & Co.
Other competitors are circling with the intention of trying to take over MGM, with its historic
Advisors to that deal say that the strategy would involve the exit of MGM Chairman Harry Sloan, but the retention of motion picture division head Mary Parent.