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Kevin Ulrich’s Anchorage Capital Set for $2 Billion Profit on MGM Sale

·3 min read

(Bloomberg) -- Kevin Ulrich’s Anchorage Capital Group is set to make a profit of about $2 billion in the sale of movie company Metro-Goldwyn-Mayer to Inc., according to people with knowledge of the matter.

The investment firm holds a roughly 30% stake in the company that’s worth about $2.5 billion in the sale, said the people, who asked not to be identified discussing a private matter. Anchorage invested around $500 million in MGM over a decade ago and helped restructure the company in bankruptcy.

Including the MGM investment, Anchorage’s flagship fund is up 18% this year, the people added. The fund has gained about 8% in 2021 not counting the movie studio. A representative for Anchorage declined to comment.

Anchorage, MGM’s largest shareholder, took ownership of the company with other investors as part of a 2010 bankruptcy agreement that erased about $4 billion in debt. Amazon on Wednesday agreed to acquire the movie studios for $8.45 billion.

MGM was a big bet for Ulrich, Anchorage’s chief executive officer. Through the bankruptcy, Anchorage swapped debt holdings for equity to become a majority shareholder. Ulrich also took a board seat, alongside Highland Capital co-founder James Dondero.

Dondero currently or formerly managed vehicles that owned as much as 18% of MGM shares, with original investments dating back to the 2010 reorganization of the movie company, according to people with knowledge of the matter.

Two closed-end funds Dondero manages, the Highland Income Fund and NexPoint Strategic Opportunities Fund, invested an initial $19 million which is now valued around $123 million, the people said. Those funds saw a roughly 19.5% internal rate of return from the investments, they added.

“During my tenure on the MGM board, we helped create value in the independent studio business, establishing a production engine in scripted TV, unscripted TV, and theatrical. But as an investor, our initial thesis was built around the value of the library,” Dondero said in a statement to Bloomberg.

Anchorage’s MGM investment, for its part, made for an IRR of roughly 16%, one of the people said.

Other firms that specialize in stressed and special situations investments also gained MGM equity stakes in the restructuring. New-York based Davidson Kempner Capital Management and Solus Alternative Asset Management were among those that held onto their shares, according to regulatory filings. Representatives for Davidson Kempner and Solus declined to comment.

New York-based Anchorage manages investments in credit, special situations and illiquid opportunities in North America and Europe, with a focus on defaulted and leveraged issuers.

Assets in Anchorage’s main credit fund have fallen over the years to $8.5 billion from a peak of $14.5 billion, one of the people said. The firm closed the vehicle to most new investments in 2017 as it raised money in other products, including lower-fee structured credit funds. Anchorage manages $28 billion overall.

Anchorage is no stranger to leading bankruptcy restructurings. Last year, it took control of preppy retailer J.Crew by exchanging debt holdings for an equity stake. Ulrich serves as chairman of J.Crew.

(Updates with Highland Capital’s investment from sixth paragraph.)

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