Legendary Hollywood studio Metro-Goldwyn-Mayer Inc said on Friday that it is exploring a potential sale of the company as it struggles to deal with looming debt payments and attempts to come up with a long-term business plan.

MGM, whose lenders extended forbearance until 31 January, said its other options include operating as a stand-alone entity or forming strategic partnerships.

Companies mentioned in media reports as potential buyers include Lions Gate Entertainment Corp, Time Warner Inc, and Viacom Inc. Investment bank Moelis & Co, hired by MGM in May to help refinance its debt, will most likely be overseeing the potential sale process.

The studio, which has enlisted a restructuring specialist to help turn it around, faces debt obligations of $3.7 billion stemming from its 2005 buyout, plus payments on a $250 million revolving credit facility due April 2010.

It was purchased from majority owner Kirk Kerkorian for $2.85 billion by a group including private equity firms Providence Equity Partners; Merchant Banking Partners, a unit of Credit Suisse; and Quadrangle Group; and media firms Sony Corp and Comcast Corp. The group also assumed a debt of $2 billion.

Film financing experts said MGM had been funding operations largely through library cash flow and access to $500 million in financing set up for its United Artists label, which is partly owned by movie star Tom Cruise.

Movies that are currently in production and projects in the development pipeline will continue, and current leadership will stay in place, reports said.

In a statement, MGM also said its lenders have agreed to grant the company another respite until 31 January from interest payments on nearly $4 billion.

MGM's decision, reversing its refusal to sell a year ago, came during a conference call on Friday between restructuring expert Stephen Cooper, now MGM's vice-chairman, and the 140 lenders who are owed some $3.7 billion in bonds maturing in mid-2012.

The lenders agreed to seek outside investors for a new partnership, investment or sale of part or all of the company. Its most valuable asset is its library of 4,000 movie and TV-show titles including the 'Rocky' series and 'Dances With Wolves'.

But the company has fallen on hard times and the home video market has shrunk.

MGM's latest release, a remake of the 1980 musical 'Fame', was panned by critics and quickly vanished from most theatres.

On Thursday, with rumours swirling of MGM's potential sale, Lions Gate Entertainment Corp vice chairman Michael Burns also said his company was interested in taking a look.

"They have fantastic franchises like James Bond, they have half of 'The Hobbit.' Of course it's interesting to us," Burns told CNBC's Fast Money.

MGM was taken private for nearly $5 billion in 2005 by a group led by Providence Equity Partners, Texas Pacific Group, Sony Corp. and Comcast Corp., DLJ Merchant Banking Partners and Quadrangle Group.

In 2007, MGM made $558 million from its library of titles alone; but since then DVD sales have declined industry-wide, and a large chunk of those sales has likely vanished.

Besides the bonds, MGM has a $250 million revolving credit facility with J P Morgan due in April.