Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 171

                                        -246-                                         
          the valuable MGM film library.  Any chance of recouping the loans           
          and advances evaporated, however, when the highest bid in the New           
          MGM sale was $1.3 billion.  New MGM was still insolvent; it still           
          owed approximately $79 million to Credit Lyonnais.  Generale Bank           
          would recover nothing on the approximately $1 billion in debt               
          obligations that MGM Group Holdings owed Generale Bank.  Stripped           
          of the potential value in its stock in the MGM operating company,           
          MGM Group Holdings was left hopelessly insolvent.  Without its              
          MGM stock and the valuable MGM film library, MGM Group Holdings             
          was essentially an empty shell, devoid of any assets of value.173           
          The only assets in MGM Group Holdings at this time were the                 
          Carolco securities and the NOLs.  Carolco had been in bankruptcy            
          for nearly a year; a first plan of reorganization filed on                  
          September 13, 1996, reflected that holders of the Carolco                   
          preferred stock and subordinated notes would receive nothing on             
          Carolco’s imminent liquidation.  MGM Group Holdings had NOLs                


               172(...continued)                                                      
          a range of values of approximately $1.6 to $2.0 billion for MGM.            
               173 SMHC’s draft financial statements for the period ended             
          Dec. 10, 1996, paint a very bleak picture of SMHC’s history and             
          future.  The financial statements report that SMHC (i) had                  
          experienced recurring operating losses, (ii) had an accumulated             
          deficit, and (iii) generated insufficient cashflow to fund its              
          debt servicing requirements.  The financial statements also show            
          that SMHC had debt held by affiliates of Credit Lyonnais which              
          was due and payable July 15, 1997, and which was not expected to            
          be extended and that SMHC’s sole shareholder, CLIS, had not                 
          committed to providing further funding of SMHC’s debt                       
          obligations.                                                                





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