Orion Unveils Plan Giving Note Holders Control of Stock

Orion Pictures Corp. on Thursday announced a tentative restructuring agreement that would give note holders 70% control of its common stock and require majority shareholder John W. Kluge to put an additional $50 million into the financially troubled company.

The agreement, which would eliminate $267 million in debt, is the result of long-running negotiations between Kluge’s Metromedia Co. and note holder representatives. The deal would leave Kluge with 29% of the restructured company’s shares, but he would retain control of Orion’s board.

Entertainment analyst Lisabeth R. Barron of S. G. Warburg & Co. said it is logical that Kluge would retain control of the board, despite surrendering his majority stake in the company.

“Kluge would not put $50 million into a company he doesn’t control,” Barron said.

Billionaire Kluge now holds a 70% stake in the New York-based entertainment company, which releases Woody Allen’s films. Orion also distributed the Oscar-winning “Dances With Wolves.”

William Bernstein, Orion’s president and chief executive, said the agreement secures the company’s future as a producer and distributor of Hollywood films. Orion continued to release pictures during its restructuring efforts but had ceased active production.

Wilbur Ross, the senior managing director of Rothschild Inc., the investment banking firm that represented note holders, said Kluge’s $50-million infusion was central to the deal.

“We think it’s a very important statement that Kluge is infusing $50 million of equity into Orion,” Ross said. “If he has made a good investment, then probably so have we. . . . You don’t always have one of world’s wealthiest people (Kluge) as your partner.”

The restructuring agreement is subject to several conditions, including the reworking of a financial partnership with Sony Pictures Entertainment. Sony advanced more than $150 million to Orion prior to the restructuring discussions in return for the right to distribute 50 future Orion films abroad and on videocassette. Ross said Sony is open to revising the agreement.

Sony could not be reached for comment late Thursday, but Ross said: “It will be both necessary and appropriate to enter into a different arrangement. (Sony) has indicated a willingness to discuss the situation, and will be supportive of the restructuring.”

Orion defaulted on a $1.2-million bond interest payment last month. Another $13 million payment was due Thursday. Sources close to the company said Orion will exercise a 30-day grace period on the payment. The company has also reportedly fallen behind on payments to creditors.

Attorneys Stephen Chrystie and Elihu Berle, who represent a group of creditors, have sent a payment demand to Orion.

Sources had speculated that Chrystie and Berle would file an involuntary bankruptcy petition against the company if the payments weren’t made. The scenario seems less likely now, but Orion declined comment on how it will respond to the letter.

Orion first floated a restructuring plan in May. That plan, which was widely criticized as unfair, called on bondholders to swap $385 million in debt for new debt and stock.