Sell Orion Pictures now or wait until it revamps its debt burden?

Sell Orion Pictures now or wait until it revamps its debt burden?

Sell Orion now, some investors are saying.

They believe they would be better off if troubled Orion Pictures Corp. were sold in its present state rather than restructured in the coming months to reduce its $500 million long-term debt load.

Other sources close to Orion argue the studio is unsalable in its present form, and bondholders will get more out of their investment if the company's debt load is reduced first.

New York-based Orion has been biting the fiscal bullet since last year, when the company lost $15.6 million on revenues of $134.9 million during the third quarter, compared to earning $1.8 million on revenues of $104.4 million in third quarter 1989.

That was the beginning of Orion's troubles. Rumors of a buyout have surfaced, the company met a $12.5 million debt payment in February by a hair and the company sold the distribution rights of "The Adams Family" movie in March to Paramount Communications Co. because it didn't have enough money to release the film.

Orion announced a recapitalization plan May 20, which involves an exchange offer by the company for about $285 million in subordinated debt, or junior bonds with second claims on Orion's assets, akin to a second mortgage on a house.

Under the offer's terms, for each $1,000 in bonds, junior bondholders would receive $750 of non-interest bearing convertible bonds due May 15, 1998, and either 37 or 42 shares of Orion common stock, depending upon the type of junior bonds exchanged. There are six classes of Orion subordinated debt, or bonds.

Most recently, the company acknowledged it doesn't have funds to meet its financial obligations past August, and that more than half of its current movie production has not yet been funded.

Orion's bonds are currently trading at between 30 cents and 40 cents on the dollar of face value and have effective yields of more than 30 percent.

By selling Orion's most valuable asset, its film library, the bondholders could get the full value for their bonds, said Ned Zachar, vice president of Duff & Phelps/MCM Inc., a Chicago-based investment research firm. The library could be sold for as much as $500 million or $600 million if there were no debt or other "strings attached," he said.

The bondholders would then get $1,000 for each of their bonds, Zachar said. The Orion film library contains 850 theatrical and television films.

But Orion's library is not very attractive to buyers, said sources close to the company. Most of the library's films were made before 1982 and were acquired from now-defunct American International Pictures, movies that generally are not of "Gone with the Wind" quality, a source said, but mostly "B" product.

In addition, the only buyers for a film library would be other studios, so the number of bidders would be limited. In addition, even though entertainment mogul Ted Turner paid a lot for much of the MGM/UA libraries, that doesn't necessarily mean Orion would get a bundle for its library, the source said.

And if the library were sold, the bondholders probably still wouldn't get paid because there is $300 million in secured bank debt attached to the library. If it is sold for $300 million, which was the price estimated by this source, the money would go to pay off the debt and there would be nothing left to pay the bondholders, the source said.

Then Orion's role as a worldwide distributor of films would disappear and the production firm would be left with only the "right to make pictures," since the company owns no physical studios, the source said.

The source noted that Orion retained New York-based Salomon Bros. brokerage firm last fall to try to find a buyer for the company but there was none.

On the other hand, if the company restructures and reduces some of its debt, it would be more appealing to a co-investor or a buyer, sources said.

Table : Orion at a glance

Purpose            Finance, produce, distribute films;
                   finance, produce, distribute T.V. programs
Assets             (as of Nov. 30, 1990)
                   $1.1 billion
Liabilities        $912 million
Physical studios   None
No. of employees   730 as of February 28, 1990
Film libraries     850 theatrical & T.V. films
Recent hit films   "Dances with Wolves"-$156 million
                   "Silence of the Lambs"-$100 million