Ryan Kavanaugh and an investor group including supermarket magnate Ron Burkle have successfully negotiated a deal that could give them the bulk of bankrupt Relativity Media, in a deal completed a day after the company’s TV unit went to an alliance of three hedge funds, according to an announcement.
The unlikely outcome of a protracted sales process Sunday afternoon means Kavanaugh, who founded Relativity and then guided it over a financial cliff, is in a position to remain atop the company and to remain a player in an industry where many have been predicting his demise for years.
“My passion for Relativity is the same today as it was on the day I founded it,” Kavanaugh said in a statement. “I look forward to working with my partners and with Relativity’s
executive team to build and take the company to the next level, continuing its 360 degree content engine approach at a time when content has never before been more valuable.”
The hedge funds that a day earlier had secured control of Relativity Television, and which also drove the auction process, also expressed pleasure at the outcome in a statement Sunday afternoon.
“As one of the largest suppliers of high quality television programming in the United States, we believe there are attractive opportunities to drive innovation, creativity and growth to enable the business to realize its full potential,” said a joint statement from Anchorage Capital, Luxor Capital and Falcon Investment Advisors. The group added that, after finalization of the process, “Relativity Television will be well-capitalized with a strong and creative senior leadership team, incredible human resources and valuable partner relationships” that they said would drive “long term success.”
The outcome of negotiations that stretched from Thursday morning and into the weekend still must be validated by U.S. Bankruptcy Court Judge Michael Wiles, who is overseeing the Chapter 11 case and auction. Multiple objections to the deal are likely, potentially coming from lenders, creative partners and vendors who stand to recoup nothing of the tens of millions of dollars they lost in the company’s meltdown. Relativity has reported nearly $1.2 billion in liabilities and assets with a book value of just $560 million.
Kavanaugh’s investor group said the new arrangement will leave the company with just $30 million in debt for properties including filmmaker Relativity Studios, a 25% share of sports agency Relativity Sports, an interest in a distribution joint venture, Relativity Music and Relativity Education, which runs a for-profit school for the fine arts. The Kavanaugh team includes a subsidiary of the Elliott Associates hedge fund, an obscure San Francisco Bay Area investment house and Burkle, who acquired most of his riches buying and selling grocery chains.
Three hedge funds that collectively are owed more than $360 million by Relativity — Anchorage, Luxor and Falcon — earlier had filed papers in bankruptcy court indicating that they would pay $125 million for Relativity Television, a thriving business with multiple reality TV programs. Their previous investment with Kavanaugh’s company effectively bought them the TV unit. Relativity Television produces unscripted cable series including MTV’s “Catfish,” Food Network’s “Guy’s Grocery Games,” “The Great Food Truck Race” and “Burgers, Brew and ‘Que,” among other shows. It’s also growing in the scripted arena with the newly launched CBS drama “Limitless,” based on one of the company’s movies.
Among those teaming with Burkle and Kavanaugh to take the studio that made “Act of Valor” and “The Fighter” was Manchester Securities, the Elliott Associates subsidiary. That hedge fund has more than $20 billion under management and is owed $137 million for its previous investment in Relativity. Another member of the new partnership is said to be VII Peaks Capital of Orinda, Calif., which is owed a minimum of $10 million it previously plowed in to the studio.
An individual familiar with the situation said that Elliott and VII Peaks apparently have concluded that their investments could be lost–and they would have to make public write-offs of those deficits–unless they helped prop up operations at Relativity. The partners hope that a recapitalized Relativity can make them at least partially whole, the insider explained.
The investment fund troika that hopes to grab Relativity TV said it plans to emerged from Chapter 11 on Oct. 20.
But even if a sale is approved next week, other legal challenges remain. Dozens of disgruntled companies, producers, and other players have objected to their contracts being assigned to any successor of the old Relativity. A representative for one unhappy producer said that — given previous claims in a lawsuit that Kavanaugh is guilty of fraud for misdirecting film release funds to other uses — he expects to call for the appointment of a bankruptcy trustee to protect the many dispossessed creditors.
Kavanaugh has denied the fraud claim by RKA Film Financing of New York and claimed the finance firm is merely trying to gain leverage over his company while it was in financial distress. In its announcement of the pending deal, Relativity said it planned to go ahead with the release of four films that RKA had earlier said needed to be handed off to another distributor — “Masterminds,” “The Disappointments Room,” “Before I Wake,” and “Kidnap.” The company also said it plans to go ahead with delayed plans to release “The Crow.”
A source familiar with Kavanaugh’s new play said that his group will obtain a loan of $95 million, with lenders who previously gave to the company among the backers. Those lenders will get an equity position in the new Relativity once it emerges from bankruptcy, the source said. The company plans to file a plan to reorganize itself and hopes to win approval for it by the end of 2015.