As Relativity Media spiraled downward in economic distress earlier this year, a little-known San Francisco Bay Area investment firm stepped forward to provide what was touted as a financial lifeline. VII Peaks Capital and unnamed other investors purportedly pumped a total of $250 million into Relativity, or so Relativity-friendly sources told the media in April.
With the entertainment company now bankrupt and scrambling to find bidders to buy some or all of the company, public reports make two things clear: The 11th hour investment from VII Peaks was not nearly enough to save Relativity. And it was way too much for the small investment firm.
VII Peaks disclosed in a public filing that it injected $10.4 million into Relativity, a major commitment, and almost a certain loss, for a firm that reported a total of just $45.3 million in investments in 37 companies as of the end of March.
None of the public documents indicate whether Relativity ever received the rest of the reported $250 million infusion.
While lawyers for scores of other lenders and creditors have maneuvered to recover as much of their investments as possible, VII Peaks has remained mute and the case docket shows no filings by the company. Also, the company has not been represented in U.S. Bankruptcy Court in New York, records show. When reached by phone this week, the firm’s managing partner, Stephen Shea, said: “I’m not going to make any comment, period.”
Despite the Relativity setback, the small investment firm still appears to have big ambitions. Just three days before Relativity filed bankruptcy on June 30, VII Peaks filed papers with the Securities and Exchange Commission to make an initial public stock offering that the firm hopes will raise $658 million for future investments.
“We invest in discounted corporate debt and equity-linked debt securities of public and private companies that trade on the secondary loan market for institutional investors and provide distributions to investors,” the IPO prospectus says. “At the same time, we actively work with the target company’s management to restructure the underlying securities and improve the liquidity position of the target company’s balance sheet.”
Bankruptcy experts, several of whom studied the Relativity case, said it is unlikely that equity holders like VII Peaks will make any recovery in bankruptcy. The shareholders stand last in a long line seeking repayment — behind secured lenders, unions with guaranteed-pay agreements and dozens of vendors. Relativity, founded 11 years ago by entrepreneur Ryan Kavanaugh, lists liabilities of almost $1.2 billion and assets with a book value of $560 million.
VII Peaks was a new player in the arena of Hollywood finance when sources close to Relativity floated the idea in April that the firm would help lead a cash infusion of a quarter of a billion dollars in the film- and TV-maker.
“We have executed a deal which will bring significant equity into Relativity ahead of a planned IPO,” VII Peaks chief executive Gurpreet Chandhoke said in a statement, referring to the mini-studio’s oft-repeated claim that it would go public. “Relativity is in a better position as a diversified global media company than ever, and it remains under Ryan’s leadership.”
Sources close to Relativity depicted the investment as a breakthrough, though the company at the time declined to comment on the record.
In its July 27 IPO filing with the SEC, VII Peaks describes itself as an “investment management firm that currently serves as a sub-advisor to a number of separate managed accounts managed by large global financial institutions and other private funds.” It says VII Peaks is owned by Chandhoke and managing partner Stephen F. Shea.
A bio offered by the company describes Chandhoke as an engineer educated in India who later received an MBA from the Wharton School of Business. He then reportedly went on to work at UBS Investment Bank and Deutsche Bank, before founding VII Peaks in 2009.
The firm –with offices in San Francisco and Orinda, Calif.—says on its website that companies it invests in have “a highly-leveraged capital structure and face a near-term liquidity risk from their outstanding debt, but that are fundamentally sound businesses with attractive long-term prospects and good management teams.”
Reached by phone this week, Shea declined to comment on the firm’s Relativity investment. Relativity Media also had no comment.
In a mid-August filing with the SEC, VII Peaks seems to hold out hope of recovering some of its investment. It said in the report that it held “the senior most equity investment in the capital structure,” and added: “We are working with the company and the management team . . . to restructure the company’s balance sheet through the bankruptcy process.”
At the time of the bankruptcy filing on July 30, the financial professional appointed as chief restructuring officer for Relativity pegged the investment of an unnamed “individual investor” and VII Peaks at a total of $62.5 million. The report did not specify how much of that sum came from VII Peaks.
The only thing the firm clearly got for its millions: Chandhoke is listed as one of nine members of the Relativity board of directors.