Relativity Auction: Stalking Horse Bidder to Pay $125 Million for TV Operations

A group of creditors has agreed to pay $125 million for Relativity Media’s television assets in a move that paves the way for founder Ryan Kavanaugh to gain control of part of his bankrupt company.

The collection of hedge funds includes Anchorage Capital, Luxor Capital and Falcon Investment Advisors. They initially had submitted a stalking horse bid that had been valued at $250 million. In court filings Saturday, the company’s attorneys write that they have withdrawn that offer and note that “No single or aggregate bids were received for substantially all of the Debtors’ assets and thus no bids were deemed Qualified Bids.” The three hedge funds collectively are owed more than $360 million by Relativity.

A hearing to approve their bid will take place in U.S. Bankruptcy Court on Monday afternoon.

In the meantime, Kavanaugh is still trying to lock down a winning bid for the rest of Relativity, which includes its film studio, a 25% share of sports agency Relativity Sports, an interest in a distribution joint venture, and Relativity Education, which runs a for-profit school for the fine arts. He is being backed in his efforts by a subsidiary of the Elliott Associates hedge fund, San Francisco-based investment firm VII Peaks Capital, and billionaire Ron Burkle.

When it filed for Chapter 11 protection, Relativity reported nearly $1.2 billion in liabilities and assets with a book value of just $560 million. The combined sales price for the television operations and the company’s other assets will fall far short of what the company owes, meaning the many creditors will not get paid back.

Relativity Television has a bustling business in producing 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, and the ABC Family comedy “Young and Hungry,” renewed for a third season.

The debt holders have focused on assuming control of the TV operation from the beginning of the bankruptcy process. With demand for TV programming exploding, the hope is that an influx of investment will grow the division’s profits. Under Relativity, the TV side was never well capitalized and its profits shored up the parent company’s struggling operations. The television business will likely be renamed, sources said.

The new owners now have to make a deal with the management team led by Relativity Television CEO Tom Forman if they want them to remain in place. Employment contracts for the Relativity TV staffers were not part of the sale. It’s unclear whether Forman and his senior team including COO Andrew Marcus intend to stay after the sale is completed.

Relativity Television already maintained separate offices in Hollywood from the main company’s Beverly Hills headquarters. It was founded in 2008 as RelativityReal, a joint venture of Forman and Relativity Media. Forman’s share was bought out a few years ago.

Cynthia Littleton contributed to this report.

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