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Rating Action:

Moody's Assigns B1 to Metro-Goldwyn-Mayer Inc.'s CFR and New Bank Debt

Global Credit Research - 09 Dec 2010

Approximately $500 million of debt affected

New York, December 09, 2010 -- Moody's Investors Service assigned a B1 Corporate Family Rating (CFR) and B2 Probability-of-Default Rating (PDR) to Metro-Goldwyn-Mayer Inc. ("MGM"). Additionally, Moody's assigned a B1 rating to MGM's proposed $250 million 5-year senior secured revolving credit facility, and to its proposed $250 million 6-year senior secured term loan. The company is expected to emerge from bankruptcy shortly and is expected to be owned substantially by its pre-bankruptcy debt holders which have agreed to convert their debt to equity as part of the restructuring. The new bank facility will be used for working capital needs and for general corporate purposes including funding new film production costs and to pay transaction costs. The rating outlook is stable.

Assignments:

..Issuer: Metro-Goldwyn-Mayer Inc.

.Corporate Family Rating -- B1

.Probability of Default Rating -- B2

.Senior Secured Revolver -- B1 (LGD 33%)

.Senior Secured Term Loan -- B1 (LGD 33%)

RATINGS RATIONALE

MGM's B1 Corporate Family Rating (CFR) reflects the company's plan to rebuild its inherently high risk film production business to keep its library fresh, and a decaying asset base represented by a vintage film and television library. As MGM's library cash flow dramatically declined in 2010, the rating is impacted by the challenge to turn around the library's declining revenue trends in the home video and syndication channels by growing digital distribution revenues and improving contract renewal rates. "Mitigating some of these concerns is the strong asset value of the library as compared to an expected moderate level of debt to be maintained on the company's balance sheet," stated Neil Begley, a Moody's Senior Vice President. In addition, the rating considers the strong credit metrics when looking solely at the company's library cash flow generation. "Though this cash flow is expected to be completely reinvested in fresh film content, resulting in overall weak metrics until several years of film slates have been produced," Begley added. The rating further reflects the risk posed by a new management team overseeing MGM, however, the historical performance of this team has been disciplined and focused, resulting in better than average results.

The B2 PDR is a notch lower than the company's CFR due to the company's all bank capital structure with financial covenants resulting in a higher probability of default and a higher expected family recovery rate of 65%.

The stable outlook reflects a balance between Moody's expectation that MGM will generate improving and strong cash flow from its large film and television library, and an increase in risk related to the new film production plans which will be funded using the library cash flows which should help to refresh that library. The initial few years of production and the cost of the build up before the product generates any revenues will likely strain credit metrics when viewed on a cost adjusted basis. However, Moody's anticipates that by about 2013, MGM's new production revenues should be in full swing and debt-to-EBITDA leverage will be sustained comfortably under 4.0 times (including Moody's standard adjustments).

A rating upgrade is unlikely in the near term based on the new senior management's lack of history in managing these assets, ramp up on production spending impact on credit metrics, and low visibility on the revenues associated with film production, and vintage library decay in later years which bear higher risk. However, if the company sustains low debt levels and management achieves better than expected library exploitation opportunities (particularly of contractual nature), and leverage falls and we believe can be sustained at under 2.0x, with credit protections in the company's bank facility agreement remaining in place, upward pressure on the rating could occur.

A rating downgrade could occur if expected significant library improvement doesn't occur or future film release performance revenue sources and EBITDA are significantly below expectations and the company is not on the projected pace for leverage (cash basis) reduction resulting in leverage which is materially higher than our initial expectation of comfortably under 4.0x by the end of 2013.

This is the first time Moody's has assigned public ratings to MGM.

Moody's subscribers can find further details in the MGM's Credit Opinion published on Moodys.com.

The principal methodology used in this rating was Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

MGM's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside MGM's core industry and believes MGM's ratings are comparable to those of other issuers with similar credit risk.

Metro-Goldwyn-Mayer Inc. (MGM), domiciled in Los Angeles, California, is comprised of one of the world's largest film and television content libraries, and was developed over the past half century. Most recently, the company is in the process of restructuring following the filing of a pre-packaged bankruptcy plan of reorganization. Post bankruptcy, the company is being led by new Co-CEOs that have extensive film and television production and distribution leadership experience. The library contains iconic brands such as the James Bond, Rocky, Pink Panther and The Hobbit (co-owned with New Line) franchises.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Assigns B1 to Metro-Goldwyn-Mayer Inc.'s CFR and New Bank Debt
No Related Data.
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