Final approval on a sale of Relativity Media has been delayed after a U.S. Bankruptcy Court judge argued there was insufficient time for creditors to read a proposal to auction off the company’s television business to a group of hedge funds.
“I applaud the efforts of everybody who worked so hard over the weekend, but we have a little bit of a due process issue here,” U.S. Bankruptcy Court Judge Michael Wiles told a packed courtroom. “People deserve an opportunity to read the agreement.”
Wiles did indicate that he was prepared to uphold the results of the auction after all of the interested parties have a chance to raise objections.
“The transaction, at least in theory, is approved,” he said.
The rushed timing was the main reason that Wiles gave for suspending judgment, noting that several filings detailing the sale of the television assets and another proposal that would find a consortium of investors led by company founder Ryan Kavanaugh retaining control of Relativity’s film operations and stakes in its sports agency and for-profit school, were not filed until 10:30 on Monday morning.
Under the proposed sale, a group of investors that includes Anchorage Capital, Luxor Capital and Falcon Investment Advisors have agreed to pay $125 million for the television business and plan to reinvest and rechristen the company. A hearing will be held Tuesday morning in New York to approve that sale.
A decision on whether or not Kavanaugh will be able to buy back parts of the business he founded 11 years ago will not take place until later this month. Kavanaugh’s backers include VII Peaks Capital, Joseph Nicholas and the Ron Burkle-backed investment firm OA3 will pay $60 million to purchase other parts of the company. The backers will submit a plan of reorganization in December or January, the company’s attorneys told the court.
In addition, a subsidiary of Elliott Management, an investment firm that had clashed with Kavanaugh in the past, will contribute $35 million in cash to pay off a debtor-in-possession loan. The investor group will also take over $30 million in debt.
Kavanaugh was not present in the New York court room on Monday. Attorneys for Relativity did say that the company had effectively spent all of the $35 million it had been granted in debtor-in-possession financing and that the studio will have to find additional funding if it wants to continue operations after Oct. 20.
Judge Wiles indicated he happy that the company will continue to operate under Kavanaugh and approved of the decision to spin-off the television business.
Attorneys for the various creditors alluded to a “death march” auction process, during which they haggled for 60 hours with only a few two hour breaks interspersed between the negotiations.
“It was a perfect crucible forcing the parties to be doing exactly what they should be doing…which is come together,” said Van C. Durrer II, an attorney for Kavanaugh.