Carolco Pictures Inc. offered Monday to repurchase high-cost junk debt a steep discount, in a move that hinges on cooperation of the company's banks.
Announcing the offer, Carolco said that it remains in violation of various covenants in its credit agreements, and continues to seek waivers from its banks. Failure to obtain the waivers could derail the offering.
Carolco has about $172 million of bank debt outstanding, under two separate revolving credit lines.
The company's principal banks are units of Bankers Trust New York Corp., Chemical Banking Corp., and Credit Lyonnais Bank Nederland.
A Critic's Perspective
Some critics likened the offer to the "Rambo" films the company produces.
"They're being heavy handed," said Steven Hill, an analyst at Sutro & Co. in San Francisco.
In the offer, Carolco offered to pay 65 cents on the dollar for all of its outstanding 14% senior notes due 1993.
As of Dec. 24, there was $67.5 million principal amount of the notes outstanding.
If less than 100% of the notes are tendered, Carolco would pay at least 66 cents on the dollar, but no more than 85 cents on the dollar, for a majority of the notes, in what essentially would amount to a Dutch auction.
In recent months, the notes have traded as high as par, and as low as 52.
December Low Point
The notes took a pounding earlier this month, after the bankruptcy filing of another film producer, Orion Pictures.
In its offering document, Carolco warned that it, too, could wind up in bankruptcy court if the banks accelerate payment of the debt as a result of the technical defaults.
But if Carolco is trying to use scare tactics to persuade noteholders to tender at distressed prices, Sutro's Mr. Hill does not think it will work.
"They obviously have some serious problems, but they're going to be all right," he said of the company.
Negotiations in Progress
The funds to repurchase the notes are held in an escrow account with one of Carolco's banks. As of Dec. 15, there was $44.2 million in the account.
Carolco can withdraw the funds up until Jan. 30, 1991, unless the company's lenders accelerate payment of the bank debt.
Carolco is currently negotiating with its banks to obtain waivers of the defaults under its credit agreement.
Officials at Bankers Trust didn't return phone calls for comment on the talks, while officials at Chemical and Credit Lyonnais were not immediately available.