U.S. Bankruptcy Court Judge Michael Wiles said Tuesday he is prepared to approve the Oct. 1 auction of Relativity Media, the Hollywood film and TV-maker that filed for Chapter 11 bankruptcy last month.
Wiles said his final approval of the sale of the company founded by Ryan Kavanaugh will be contingent on details being worked out, but he said he is ready to approve a sales plan initially proposed by Relativity’s senior lenders — Anchorage Capital, Luxor Capital and Falcon Investment Advisors. Relativity has reported nearly $1.2 billion in liabilities and assets with a book value of just over $560 million. Its films include “Act of Valor” and “The Immortals,” and it has produced television shows like “Catfish.”
The judge, sitting in Manhattan, also approved $49.5 million in debtor-in-possession financing so that Relativity and its biggest lenders have the funds to keep running the company and preparing for the auction.
“Hopefully this will keep the business running and in as good shape as possible,” Wiles told a packed courtroom of attorneys for Relativity’s creditors and lenders.
The judge’s decision came after a punishing day of debate, in which sales and financing details were picked over with many lenders raising objections about the accelerated speed with which Relativity was hoping to barrel through the Chapter 11 process. Even Judge Wiles admitted that he had reservations about the pace of the sale, reminding attorneys that he initially declined to approve debtor-in-possession financing that mandated a firm sales date.
“Everyone seems to agree this is the right timing for a sales process,” he said.
Because the bankruptcy schedule has been pushed back by two weeks while the various lenders and creditors were given a chance to hash out their objections, the amount of debtor-in-possession financing has been increased from the $45 million the company initially sought to keep operations running to $49.5 million.
It was the third time that the issue of the interim funding has been before Judge Wiles. In the two previous instances he approved smaller stop-gap loans. Creditors said Tuesday that the extra time had allowed them to resolve difficulties they had with the process, even as they raised concerns that a faster sale could reduce the amount of time they have to raise issues.
“In a perfect world we want the sales process to be longer,” admitted Al Togut, an attorney for the creditors committee, but he said, “We want to send a clear message to the wonderful and talented people working for the debtor that we very much understand their desire to have certainty.”
The judge’s decision was made possible after attorneys for a group of affiliates for the hedge fund Elliott Associates withdrew objections to a sale after Relativity made a series of concessions. The funds have accused Relativity in filings of not sharing financial information and depositions.
There are still issues left to resolve, all of the parties indicated. For example, Relativity and its lenders have yet to work out how the proceeds from an auction will be allocated. Though a stalking horse bidder made up of companies like Luxor and Anchorage that are providing the interim financing has submitted a baseline offer of $250 million, it’s not clear that the winning bid will be enough to cover all of Relativity’s liabilities. Attorneys for the company indicated that they expected there will be a waterfall structure in determining payments, which would mean that lenders who are higher up in the debt structure will get money first.
After a full day of back-and-forth in a crowded courthouse marred by stale air, attorneys seemed relieved that Judge Wiles was poised to approve the financing.
Responding to a concern raised by one creditor that certain film royalties on a project his client had rights to came due in 2016, Bennett Spiegel, an attorney for Relativity, quipped, “By the time 2016 rolls around this case will be a happy memory.”