Relativity Media’s Latest Investment Partner May Solve Debt Crisis, For Now

A Toronto-based private equity firm has agreed to bail out cash-strapped Relativity Media, according to a source familiar with the arrangement, though it remains unclear how the entertainment company will satisfy other creditors so that it can lay its financial challenges to rest.

Catalyst Capital Group, which specializes in distressed and undervalued companies, has acquired all of Relativity’s senior secured debt of $150 million, said an individual familiar with the deal, who declined to be named. The Canadian investment firm reportedly has agreed to extend for one year a debt repayment requirement facing Relativity.

A spokesman for Catalyst did not return repeated phone calls, but the source said the investment company also had agreed to pump an additional $170 million of equity into Relativity to help stabilize the film and TV producer and position it for future growth. Following the arrangement, Relativity founder and CEO Ryan Kavanaugh reportedly will maintain his post, while the Toronto investment company will take a seat on Relativity’s board.

The agreement leaves Kavanaugh and his company in negotiations with a number of other investors who hold subordinated loans with Relativity. Among the companies awaiting repayment is New York-based Colbeck Capital.  Colbeck’s conflict with Relativity became public in late May, with the entertainment company accusing the investors of spreading false rumors of financial instability in an attempt to take over Relativity.

The source who described the deal with Catalyst on Monday said he expects Colbeck and other creditors to also agree to one-year extensions, thereby giving Relativity more time to reorganize and strengthen its position.

With both Catalyst and Kavanaugh not speaking about the new financial arrangement, it is impossible to assess its impact on the company, which made “The Fighter,” “Three Days to Kill,” “The Best of Me,” among dozens of other films.

Analysts said, however, that companies that take on new investors to bail out old ones generally face more onerous terms with each succeeding deal. One expert who follows Hollywood entertainment companies closely likened Relativity’s situation to the one currently roiling Greece. In order to pay down debts, the debtor requires more capital, but the cost of that capital becomes increasingly expensive, deepening the hole.

“It’s an adverse cycle,” said Hal Vogel, a veteran media analyst. “If you failed to throw off sufficient cash flow at a lower interest rate, it gets harder and harder to get ships steering on a straight course.”

Relativity has not backed down from its plan to make an initial public stock offering in 2016, but its very public lending struggles make such a development more challenging.

Kavanaugh has said his company — which also includes a sports agency — does not need to produce blockbuster films to make solid profits. Rather than these “home runs,” the Relativity boss said his company knocks out singles and doubles, with a high-enough profit margin to benefit over the long term. Still, a breakout film or two would go a long way toward stabilizing Relativity, where employees are said to be troubled by the repeated reports of financial difficulties.

The company’s current slate includes the oft-delayed remake of “The Crow” and the Zach Galifianakis comedy “Masterminds.”

“If the markets are friendly and the forthcoming projects are sufficiently of interest [an IPO] could happen, but it’s a low probability,” said Vogel. “There has to be some kind of future growth pattern that’s visible to perspective investors.”

More Biz

  • Harvey Weinstein deliberation

    Weinstein Jury Ends Day With Request for Annabella Sciorra's Testimony, No Verdict

    The jurors in the Harvey Weinstein trial ended their third day of deliberations on Thursday with a request to hear the testimony of Annabella Sciorra. The jury has now been deliberating for more than 14 hours, and will return for further deliberations on Friday morning. In a note to the judge late Thursday afternoon, the [...]

  • EFM Euro Film Policy Seminar

    Berlin: European Film Policy Seminar Examines Changing Landscape

    The Berlinale’s European Film Market opened on Thursday with the inaugural European Film Politics Seminar, offering a look at the pressing challenges facing independent European producers in a fast-changing landscape increasingly dominated by the growing number of U.S. streaming giants. The seminar was hosted by Steven Gaydos, executive vice president of global content of Variety. [...]

  • Gloria Allred clients suing Harvey Weinstein

    Are Harvey Weinstein's Accusers Planning to Sue? Gloria Allred Says 'This Is All Speculation'

    Gloria Allred is representing three of the six women who have testified in Harvey Weinstein’s criminal trial. The high-profile attorney has been accused by Weinstein’s legal team of having plans to sue the former Hollywood honcho after his rape trial concludes. During closing arguments, Weinstein’s lead attorney Donna Rotunno said Allred sits in court every [...]

  • Friends TV Series

    'Friends' DVD, Digital Sales Soar as It Takes a Break From Streaming

    They’re on a streaming break — but “Friends” will still be there for you. WarnerMedia’s home entertainment division is aiming to capitalize on the brief disappearance of the hit sitcom from streaming video on demand, as fans look for other ways to get their “Friends” fix. Repeats of the wildly popular laffer, which ran for [...]

  • Berlin Film Festival

    Berlin Film Festival to Hold Minute of Silence for Victims in German Shooting

    The Berlin Film Festival has announced it will hold a minute of silence at its opening gala on Thursday for the victims of the shooting that took place in the German city of Hanau. “With great dismay and sorrow, the Berlinale learned of the fatal attack yesterday in Hanau,” the festival said in a statement. [...]

  • Spotify and Resident Advisor Announce Ticketing

    Spotify Unveils Ticketing Partnership With Dance Music Platform Resident Advisor

    Spotify today announced a ticketing partnership with influential dance-music website Resident Advisor with the goal of “supporting music communities around the world by increasing attendance to thousands of local venues and parties.” The program will connect Spotify users to events by artists via localized event listings promoted within the application. The program is similar to [...]

  • (L-R): Claire Danes as Carrie and

    Showtime Programming Strategy to 'Evolve' as RuPaul, BET Brands Added to Mix

    Changes are afoot for Showtime as the newly enlarged ViacomCBS scrutinizes its $13 billion in content spending across the company. ViacomCBS on Thursday unveiled plans to rebrand the Showtime Showcase channel — one of a handful of secondary channels in the Showtime group — as Sho BET to feature scripted series aimed at African-American audiences. [...]

More From Our Brands

Access exclusive content