After suggesting that Relativity might not be ready to exit bankruptcy protection, U.S. Judge Michael Wiles closed a roller-coaster hearing Tuesday, conditionally approving the studio’s reorganization.
If the company can prove to Wiles’ satisfaction that it has secured some $80 million in financing, as well as a firm agreement to have Kevin Spacey and his producing partner Dana Brunetti take over the studio’s creative direction, the judge said he will approve Relativity’s exit from Chapter 11.
“So much has gone into working out the deals…that parts have continued to move maybe a little bit more than is usual in a Chapter 11 case as we got to the end,” said Wiles, who praised the dozens of attorneys gathered in a packed Manhattan courtroom for their efforts.
“The amount of work that has gone into this has been beyond anything that can be described and it’s been excellent work.”
To that end, lawyers for Relativity and for its founder Ryan Kavanaugh said they would file documents showing that the financing is secure and would submit video testimony that would demonstrate that Spacey and Brunetti were prepared to take over the company. Attorneys for Relativity suggested that the studio should be able to satisfy the judge’s remaining issues by a February 17 hearing.
Approached after the court session, as he accepted congratulations from colleagues and lawyers, a beaming Kavanaugh said he “looked forward to rebuilding.”
He added, “We’re just lucky that in America, we have a system like this that if you make some mistakes, it lets you come back. And we’re not going to make the same mistake twice.”
Spokespeople for Kavanaugh sent out a press release even as Tuesday’s hearings were concluding. In it, the Relativity founder called the court’s decision a “milestone,” and added that the studio will leave Chapter 11 “as a stronger, well-capitalized media company that is well positioned for growth and success.”
Earlier, Wiles had said that financial projections offered up by Relativity were too dependent on the company being able to secure adequate financing after it left bankruptcy protection. These moving parts could fail to align at key moments throwing the whole business out of waco.
“I’m just not comfortable setting this loose and blessing it…my obligation is to bless the actual plan not what the plan might be or what it might morph into,” said Wiles.
Relativity had countered by offering up investor Joseph Nicholas, who has injected $29 million in equity into the studio and plans to co-manage its financial affairs, and Matthew R. Niemann, an executive with Houlihan Lokey, the financial firm that has been advising Relativity on the reorganization. Both men testified that the studio had substantial assets and enough working capital to function as a going concern.”
“The testimony is that even if it doesnt come in the debtor can squeak by,” said Wiles, adding at another point, “It’s just too vague and uncertain.”
Weighed down by film flops such as “Out of the Furnace” and “Brick Mansions,” Relativity filed for bankruptcy protection last summer, citing $1.2 billion in liabilities and assets with a book value of just $560 million. Last fall, its television business was auctioned off to a group of hedge funds that include Anchorage Capital, Luxor Capital and Falcon Investment Advisors.
In bankruptcy, the studio has been able to wipe roughly $630 million from its books.