A tax attorney could probably give you the whys on this, but as I understand it there’s really only two types of bankruptcies in this country. Both of them stem from major financial problems, but the similarities stop there. In the bad kind of bankruptcy, an ill-advised, unprofitable company turns to the courts because they’re no longer able to pay off creditors. Most involved agree there’s little reason to save the business and the assets are divided up and handed over to the lenders. This would happen if, say, you opened a high-class boutique in a low income neighborhood. It would obviously go under, and no one in their right mind would have any hope of things turning around. But then there’s also the good kind of bankruptcy. This happens when you take a formerly profitable business venture in a consistently profitable business field and through a series of idiotic, buffoonish decisions, run the whole thing straight into the ground. That’s the situation MGM is in, and that’s why today, they filled for bankruptcy with the long-term goal of once again becoming profitable.
According to Coming Soon, MGM and many of its affiliates have agreed on a reorganization plan with their major creditors and have filed for Chapter 11 bankruptcy in order to quickly get approval for the courts. If okayed, the measure will essentially trade partial ownership of the company for a significant reduction in its four billion dollar debt, as well as provided an influx of spendable cash. This will allow MGM to continue paying its employees, film already in-production movies, and, hopefully, greenlight future projects that will actually make money, rather than drain further equity.
In some respects you could call the MGM fiasco a bailout, but as it’s a privatized agreement being solidified by the courts, it doesn’t really cost any of us money. This is simply the case of a big business in a lucrative field who nearly lost it all through mismanagement. Now it’s being saved by a group of investors and lenders for the sole purpose of potential profit. It’s capitalism at its best.
Expect the courts to act within the next the next few months and for MGM to take at least one more run at turning a profit.
