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Elliott Associates Renews Objections to Relativity Auction

The giant New York hedge fund that could be one of the biggest losers in the upcoming bankruptcy auction of Relativity Media renewed its objections to the hurried sale in a legal filing Wednesday.

A subsidiary of Elliott Associates said in its motion in U.S. Bankruptcy Court in New York that “it is not at all clear” that the rapid sale of Relativity — with bids due Sept. 25 and an auction set for Oct. 1 — will “maximize the debtors’ value.” The subsidiary, Heatherden Securities, acknowledged that it had previously signed off on the auction but said “this does not alter the fact that the sale timetable is being driven by the lenders’ timetable and control of [Relativity’s] access to liquidity.”

Hundreds of millions of dollars in loans from Elliott helped turn Ryan Kavanaugh’s film financing operation, Relativity, into something closer to a full-fledged studio. While Relativity’s debts to Elliott have been reduced over the years, a July 30 bankruptcy filing showed that the entertainment company still owed the hedge fund $137 million.

Elliott’s chance of recovering the money is considered low, because it stands behind many other creditors, principally senior lenders who are owed a total of more than $360 million. At this point, those lenders have made a $250 million credit bid for Relativity. If that bid is not topped in the auction, the vast majority of Relativity’s $1.2 billion in liabilities would go unpaid. Bankers and a hedge fund manager closely following the upcoming auction have told Variety they doubt anyone will bid more than the $250 million “stalking horse” opener.

The giant hedge fund has been one of the more combative creditors in the bankruptcy. The firm’s new objection cites case law that says it’s the responsibility of the bankruptcy court to protect against the “fear that one class of creditors may strong-arm the debtor-in-possession, and bypass the requirements of Chapter 11 to cash out quickly at the expense of other stakeholders.”

But lawyers for the Elliott subsidiary say they filed the objection preemptively and that it will be withdrawn if the bidding produces a favorable result.

“While Heatherden has an open mind and the outcome of the auction process is not yet entirely predetermined, Heatherden continues to believe that [Relativity’s] business has substantially greater value than is likely to be achieved through the proposed sale,” the motion reads, “and that it is not a foregone conclusion that this value cannot be made available to the estates and their creditors.”

The firm says it intends to pursue further discovery and appraisals of Relativity’s assets and other possible “alternatives available to maximize value, including through a plan of reorganization.” But the ultimate position of the Elliott subsidiary won’t become clear until after the Oct. 1 auction.

“The outcome of the auction will, of course, have a substantial impact on whether Heatherden ultimately opposes the sale at the final sale hearing on Oct. 5,” Wednesday’s filing says. “A robust auction result may mitigate or eliminate the value leakage from this process.”

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