U.S. Bankruptcy Court Judge Michael Wiles expressed frustration to attorneys for Ryan Kavanaugh’s investor group for filing an 11th hour plan in the wee hours of Thursday morning to fund operations at parts of bankrupt Relativity Media.
Calling their proposal “opaque,” Wiles said he could not approve the debtor-in-possession financing needed to keep the lights on until the company can emerge from Chapter 11 protection.
“What was filed is about as opaque as it can be,” said Wiles. “It would be hard for me, with a document filed at 1:35 in the morning, to approve it at 11 o’clock.”
He told them to refile their proposal and give him more time to approve it. In the meantime, existing DIP financing was extended until the next hearing to keep the company operational.
The lawyers were quick to apologize. “Message received” said Bennett Spiegel of Jones Day, who is representing the company.
Before the judge spoke up, Spiegel touted the success of the television sale and said that with the new plan for the rest of Relativity, “$500 million on the balance sheet should be converted to equity or otherwise disappear.”
He added: “It is a done deal. The business has been preserved and the jobs Have been preserved. Hopefully that business will go on and be profitable for all concerned.”
Judge Wiles seemed frustrated during the hearing, mentioning that there were many documents in the filing that didn’t relate to things he needed to approve but concerned agreements among the parties.
“Trying to sit there with the documents and understand what has happened is going to take me forever,” Wiles said.
A new hearing has been set for Oct. 27.
Attorneys for Relativity said hedge fund Elliott Associates will take over the $35 million DIP loan through its Manchester Securities subsidiary. A deal for Relativity’s television businesses to be sold to a consortium of hedge funds was approved earlier this week. As part of that pact, creditors Anchorage Capital, Luxor Capital Falcon Investment Advisors will forgive $125 million in debts for rights to the studio behind MTV’s “Catfish” and CBS’s “Limitless.”
Kavanaugh, who founded Relativity, has assembled his own group of investors to buy back the company’s film studio, its stake in a sports agency, a for-profit school, and other businesses. He changed his funding formula for that purchase earlier this week. Initially, Kavanaugh’s group was to pay $60 million in cash to purchase parts of Relativity Media and to assume another $30 million in debt. Now it will acquire Relativity’s senior secured debt for $65 million in cash and $60 million in debt. That transaction does not need court approval and representatives for Kavanaugh say the deal has closed.
Under agreement for the funding needed to keep Relativity operational, $17.5 million of the $35 million DIP loan has to be repaid in cash by the time its reorganization is completed.
Relativity filed for bankruptcy last summer citing liabilities of almost $1.2 billion and assets with a book value of just under $560 million.