'Hobbit' stays with MGM

Debt deal allows studio to remain a player in adaptation

By Carl DiOrio and Borys Kit
Oct 1, 2009, 07:31 PM ET


MGM has secured support from key lenders to allow the studio enough cash to proceed with its participation in "The Hobbit."

A recent proposal by MGM's new CEO Steve Cooper to defer interest payments on its debt load for the next three months on Thursday won a crucial endorsement from J.P. Morgan.

The investment firm leads a lenders steering committee that has been agitating for a dramatic restructuring of the Lion's operations and its ownership structure. In exchange for an agreement to limited interest forbearance, J.P. Morgan secured a few changes in existing debt terms.

Concern over MGM's hold on "Hobbit" is at the heart of the activity. In a 50-50 rights partnership with Warner Bros.' New Line unit, two "Hobbit" pics are being developed.

The first "Hobbit" aims for theatrical release in 2011, with Guillermo del Toro on board to direct that and a sequel. Peter Jackson, Fran Walsh, Philippa Boyens and del Toro are writing scripts for both and are e xp ected to deliver the first screenplay by the end of November.

Warners will lead production and distribute at least domestically. For now, the Burbank studio also is covering any immediate e xp enses.

In the end, the forbearance was granted, but not everyone was thrilled with the move. But a 51% majority would have had to oppose the plan to block its implementation, and that was never likely given such a disparate group of lenders.

The move to delay interest payments until Dec. 15 wasn't motivated by any immediate fears of insolvency at MGM, as a recent company audit showed cash flow should be sufficient to keep the lights on for at least another year.

But both current management and the lenders realize the studio's various rights on major properties such as "Hobbit," "The Pink Panther" and, most of all, the lucrative James Bond franchise are key to MGM maintaining a decent market value.

Eventually, once equity is shifted from the Lion's current owners to the lenders group, an auction likely will be held for the studio. Keeping its 50% hold on "Hobbit" -- broadly viewed as a potential big moneymaker -- would bolster interest in bidding on the Lion.

In backing the studio's payment holiday, lenders will get weekly reports from MGM regarding its cash levels and other financial details. Execs also pledged to submit a detailed restructuring proposal and updated valuation of its assets by Nov. 30.

MGM execs hope to corral at least $40 million for its "Hobbit" activities. The requested interest deferrals amount to more than $50 million.

Lion management first proposed the forbearance on Sept. 28, seeking a payment holiday until Jan. 15. The shorter period of interest deferral was hammered out in subsequent negotiations with lenders.

Current MGM owners include investment firms Providence Equity and TPG, Sony and Comcast.

A banking source said some of the tweaks to debt terms will begin to dilute those owners' current equity. A much more dramatic shifting of equity is e xp ected over coming months as lenders agree to convert debt to equity.

Once the lenders become owners, that group likely would conduct an auction for the assets. Nobody sees the lenders group as a long-term operator of MGM.

Arise, Sir Dracula: prince knights Christopher Lee

Mind the fangs: Sir Christopher Lee receives his knighthood from the Prince of Wales at Buckingham Palace. Photograph: Johnny Green/PA


Finding oneself opposite a tall, baleful celluloid vampire would have most people reaching for a head of the most pungent Spanish garlic, a large crucifix or a sharp stake.

The Prince of Wales, however, opted for a ceremonial sword, even as the 1.95-metre (6ft 5ins) vision of Count Dracula leaned worryingly close to the royal neck.

Fortunately, the prince had little to fear. Christopher Lee – aka Counts Dracula and Dooku, not to mention Lord Summerisle and the Duc de Richeleau – had been invited to Buckingham Palace today to receive a knighthood for his services to drama and to charity.

The 87-year-old is one of cinema's most prolific actors, appearing in more than 250 films over the course of a career that has so far spanned 61 years.

After making his name by poking blood-red contact lenses into his eyes and false fangs into his gums for a series of Hammer Horror films, Lee went on to play the urbane laird of the pagan manor in The Wicker Man and the bounteously nippled, bling-packing assassin Francisco Scaramanga in the James Bond film The Man With the Golden Gun.

More recently, the actor has lent his imposing frame and limpid tones to the roles of the evil Middle Earth wizard Saruman in the Lord of the Rings, and the evil space wizard Count Dooku in the final two Star Wars films.

Lee, whose mother was an Italian countess, will next be seen in Tim Burton's Alice in Wonderland, in which he plays neither a vampire nor a wizard but the Jabberwock.

'Gandalf' has read the Hobbit script and tells us about it

Ian McKellen, whom we e xp ect will put on Gandalf's gray robes in director Guillermo del Toro's upcoming Hobbit movies, tells us he's finally read the script for the films.

And, no, he won't tell us much about it, except that producer Peter Jackson (who co-wrote the script with longtime Lord of the Rings collaborators Fran Walsh and Philippa Boyens, as well as del Toro) wrote it specifically for him.

"As Peter has said, they loved writing Gandalf [for The Hobbit] because they knew who they were writing him for," McKellen told us exclusively in an interview last week while promoting AMC's The Prisoner. "There are a lot of characters in The Hobbit, including, crucially, Bilbo, and they don't know who's going to play Bilbo. So it's extremely attractive that this part has been written for me. The other Gandalf was written for, well, just as Gandalf. There's lots for me to enjoy, in all sorts of ways. And I couldn't be happier. But I'm sworn to secrecy. I'm not to say anything at all about the script."

As for del Toro's input into the new script, McKellen said that he and Jackson speak the same language. "They are the same person," he said. "They were separated at birth. They're twins. They have the same attitude. Neither likes working in Hollywood. They're both fascinated by fantasy and violence on the screen, and gore, and things that frighten you. They like going into the psyche. They're both brilliant storytellers in very much the same way. And I think the script, because I have read it, plays very much to Guillermo's strengths, as I've seen them. I have seen his other movies, and people act very well in them. So I think it's all fine. And Peter will always be there."

McKellen said that the role of Gandalf changed his life forever. "I can't believe it's 10 years for me," said the actor, who first played the wizard in The Lord of the Rings: The Fellowship of the Ring, film one in the trilogy that began principal photography in New Zealand in 1999. "I remember being told by a friend in Hollywood that 'your life is going to change,' and it has. Gandalf is an extremely famous character, and I quite like having him around the corner. He's very popular."