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had no reasonable prospect of generating any revenue to pay back
any meaningful part of the $79 million receivable or, for that
matter, the $974 million in receivables that Generale Bank held.
For these reasons, we conclude that the $79 million receivable
does not represent a bona fide indebtedness and did not arise
from a genuine debtor-creditor relationship.
Petitioner contends, however, that the $79 million
receivable originated in December 1993 when New MGM was created.
Petitioner contends that under the original loan documents
executed in 1993, MGM Group Holdings guaranteed the line of
credit that gave rise to the $79 million receivable. Petitioner
contends that the debt was bona fide when made and the guaranty
was enforceable against SMHC after the $79 million balance was
not paid by the proceeds of New MGM’s sale. Petitioner contends
that MGM Group Holdings’ assumption of the unpaid $79 million
obligation simply reaffirmed its preexisting obligation under the
1993 guaranty.
Petitioner is correct that the $79 million in debt
obligations emanated from the 1993 working capital agreement
between Credit Lyonnais and New MGM. Pursuant to that agreement,
Credit Lyonnais agreed to make certain credit facilities
available to New MGM to fund its cashflow requirements consistent
with its business plan. MGM Group Holdings irrevocably and
unconditionally guaranteed the full and timely payment of the
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