Relativity Media’s Investment Much Lower Than Reported (Exclusive)

Ryan Kavanaugh Relativity
Michael Buckner/Getty Images

The Toronto-based private equity firm that was supposed to help rescue Relativity Media from its long-running debt crisis is investing substantially less than the $320 million previously reported, leaving the struggling Hollywood entertainment company still in danger of bankruptcy.

Relativity CEO Ryan Kavanaugh has been scrambling for weeks to recapitalize the company he founded 11 years ago, but has so far been unable to put together a financial package to assure that his operation remains afloat, with himself at the helm.

Sources earlier this month said Catalyst Capital Group of Canada would take on all $150 million of Relativity’s senior secured debt and inject $170 million more in new equity into the Beverly Hills-based maker of movies and television shows. But people familiar with the transaction said Tuesday that Catalyst is not investing $170 million, or any new equity dollars. Also unclear is the precise amount of Relativity’s debt that Catalyst will assume.

Catalyst representatives have not responded to repeated requests for comment. Relativity declined to comment.

Kavanaugh has been trying to stave off not only senior debt holders but also a group of subordinated lenders who are demanding repayment, too. Among those is New York-based Colbeck Capital. Colbeck’s conflict with Relativity became public in late May, with the entertainment company accusing the investment house of  spreading false rumors of financial instability in an attempt to take over Relativity.

While many employees and investors waited expectantly for news about the company’s future on Tuesday, the only pronouncement emerging from Relativity was an extended political essay by Kavanaugh. The 40-year-old executive, writing on the Wrap, excoriated the U.S. government for reaching a nuclear non-proliferation accord with Iran. He also hammered President Obama for expanding the power of government and harming America, saying Obama was following “his Bible, the Communist Manifesto.”

Some people close to the studio said they were dismayed to see the CEO distracted by other issues as Relativity struggles for solvency.

Because Relativity is not a public company, its finances have remained murky. But it acknowledged that a May debt repayment had to be postponed because of liquidity problems. There have been reports that other repayment dates have come and gone.

It became clear last week that the financial crisis was already having repercussions. Relativity announced it was delaying the  release of the comedy “Masterminds” in an effort “to allow the company to focus on its recapitalization and give this film the proper attention and support it deserves.” The oft-delayed Natalie Portman starrer “Jane Got a Gun” could also be moved back from its Sept. 4 opening.

The company is close to a deal to sell the science-fiction romance “Out of This World” to STX Entertainment and may sell the rights to other projects it has in development and pre-production.

A person familiar with Relativity’s debt issues believed there would be a resolution by the end of July, but added that the situation “remains fluid.”

Brent Lang contributed to this report.

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  1. Bella Bellafonte says:

    He’s mad that Obama, unlike him, can actually close a deal… And trying to pander to some right wingers to back his failing studio…I wonder what Ryan would do if Iran offered to pay off his debt?

  2. Nick Turner says:

    In each generation there are a few world class financiers and a few world class film studio executives. As RK’s current difficulties demonstrate, the two groups rarely if ever overlap.

  3. EK says:

    It was obvious when there was no credible follow up to THR’s first report of the bailout that it was bogus. This latest rant by Kavanaugh puts one in mind of Donald Trump-like megalomania and must be very disheartening to Relativity employees who are the victims of his false assurances. Investors are risk players and this is a game for them but employees are unwitting victims. Can a Trump/Kavanaugh ticket be far behind? Meanwhile the deck chairs are lining up on this rudderless voyage into increasingly icy waters.

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