FILM STUDIO Metro-Goldwyn-Mayer (MGM) has proposed a pre-packaged bankruptcy plan that would wipe out $4 billion (€2.9 billion) in debt and put the founders of Spyglass Entertainment at the helm.

MGM, which has been mired in months of talks with creditors and investors to try to cut its debt, said it had begun seeking lenders’ votes for the reorganisation plan to salvage the legendary studio.

The plan provides for MGM’s secured lenders to exchange more than $4 billion in debt for 95.3 per cent of equity in the company upon its emergence from chapter 11 protection, the company said.

Any agreed restructuring should clear the way for the making of The Hobbit, a two-part prequel to the Lord of the Ringstrilogy, which MGM is set to make with Time Warner. The companies have yet to announce the start of production but MGM's woes had been an obstacle. The studio has struggled for years with debt after a $2.85 billion 2005 leveraged buyout by a group that included private equity firms Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners. The deadline for the company's secured lenders to vote on the plan is October 22nd unless extended.

More than 50 per cent of MGM’s creditors, who own at least two-thirds of its debt, must endorse the plan for it to pass.

A majority of the company’s senior secured lenders are led by JPMorgan Chase and Credit Suisse. Following receipt of the consent, MGM said it plans to begin the chapter 11 proceedings.

MGM put an initial idea of selling itself outright on hold after offers from such as Time Warner, which had bid about $1.5 billion, were considered too low. Late on Thursday night, the studio presented a plan under which production company Spyglass would contribute assets in exchange for 0.52 per cent of a reorganised MGM. Two Spyglass affiliates, Cypress Entertainment Group and Garoge, will merge into MGM in exchange for 4.17 percent of the reorganised company. – (Reuters)