Approval on a transfer of financing needed to keep Relativity Media operational until it can emerge from bankruptcy was delayed on Tuesday.
A new hearing on a proposal for hedge fund Elliott Associates to take over a $35 million debtor-in-possession loan for the company through its Manchester Securities subsidiary needs to be revised, U.S. Bankruptcy Court Judge Michael Wiles said. The judge was particularly concerned that language in the new agreement went beyond the matter at hand to protect certain financial covenants that applied to a larger sale of Relativity’s assets. Until the language is amended, Wiles said he could not approve the pact.
“The bankruptcy code won’t let me,” he said. “It doesn’t mean it would be a bad business deal or the wrong business deal. It just means I can’t do that.”
Van Durrer II, an attorney for Ryan Kavanaugh, the Relativity founder, expressed optimism that Wiles’ issues could be resolved. He noted the speed of coming up with an offer for the company had led to some complications.
“We had to be nimble,” he said.
Manchester will be taking over the DIP funding from Cortland Capital. That hedge fund headed up a group of investors such as Anchorage Capital, Luxor Capital and Falcon Investment Advisors in a successful bid for Relativity’s television business earlier this month. They bought the studio in exchange for forgiving $125 million in debts.
Kavanaugh has assembled a group of backers to buy back the other parts of the company, which include a film studio and a stake in a sports agency.
It was a hearing that was heavy on procedure and light on drama. There was some anticipation that the courthouse would be the stage for a dispute between Kavanaugh’s investor group and VII Peaks, a hedge fund that was originally supposed to help fund the purchase.
The parties clashed prior to the hearing, with the Kavanaugh group accusing the hedge fund of misrepresenting its capital capacity when it fell out as one of its backers.
That forced the Relativity Media chief to reconfigure his $90 million bid. The company was originally going to offer $60 million in cash, but will now provide $30 million in cash and the rest in debt.
“VII Peaks Capital is attempting to obfuscate its own failure to perform by shifting responsibility to the investors, including the CEO who worked around the clock to save the company,” a spokesperson for Relativity said. “Since Relativity’s suit, VII Peaks has as much as admitted that they lacked the necessary funding, instead trying to broker third party capital to cover their own shortcomings.”
The company went on to predict that VII Peaks would make some kind of legal filing alleging fraud against the Kavanaugh team.
Wiles asked if he would hear anything about the VII Peaks dispute on Tuesday, but attorneys said they were not ready to discuss the issue.