Relativity Media Lender Objects to Bankruptcy Payment of Residuals

One of the largest lenders hoping to recover funds it lent to bankrupt Relativity Media is objecting to the company’s proposal to pay residuals and participation fees to talent for work done prior to the insolvency filing. The lender fears the payments will further deflate the already sagging value of the entertainment concern.

Manchester Securities Corp., a subsidiary of hedge fund Elliott Associates, filed its objection Wednesday in U.S. Bankruptcy Court in Manhattan, calling a plan to make the payments to writers, directors and others “particularly troubling” given that the proposed auction of the company already may leave “hundreds of millions of dollars of pre-[bankruptcy] secured debt . . . . unsatisfied.”

The Elliott subsidiary is owed $137 million, plus interest, according to the July 30 bankruptcy filing by the entertainment company founded by Ryan Kavanaugh. With Relativity struggling to release its films and other assets devalued, it appears Elliott and other creditors may struggle to recover their investments. Relativity has declared nearly $1.2 billion in liabilities and about $560 million in assets.

Elliott, with $27 billion under management, made loans that helped Kavanaugh expand Relativity from a financier to a producer of films and television.

Early payments to some creditors should be made sparingly, the hedge fund argued, adding that Relativity had not proven that it will have trouble doing business with union employees and other talent in the future, should the payments not be made. “The court should not authorize [Relativity] to elevate these pre-[bankruptcy] claims at the expense of other, potentially higher-ranked, claims,” the motion asserts.

The motion and a number of competing claims are set for a hearing next Tuesday, August 25.

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