Relativity Media Lender Moves to Seize Four Films Because of Non-Payment

A film distribution lender owed $85 million by Relativity Media has asked the U.S. Bankruptcy Court in Manhattan to allow it to seize four unreleased Relativity films so that it can try to push the pictures out to market to recoup on the overdue loans.

In a motion filed Wednesday, RKA Film Financing asked the court to remove a stay on actions against the bankrupt Beverly Hills studio so that it can take control of the movies “Masterminds,” “Somnia,” “Disappointments Room” and “Kidnap.”

The filing says that the loans it made to Relativity include a provision that allows RKA to take films as collateral if it does not get paid. RKA claims that its lien on the films is “senior to the rights of other lenders,” including the hedge funds that are now driving the bankruptcy and attempting a quick liquidation sale of the failed studio.

RKA previously filed suit in Supreme Court for the State of New York, accusing Relativity CEO Ryan Kavanaugh of fraud. That earlier action called Kavanaugh a “con man” and said his firm had diverted millions of dollars, designated for the release of films, for ongoing operating expenses at the entertainment concern. Kavanaugh had responded with a request for sanctions against RKA and said the firm was merely attempting to win an equity position in Relativity.

RKA’s filing in the bankruptcy court says that Relativity has demonstrated a “consistent pattern” of a “lack of concern” over the protection of the films and their value. The motion noted that Relativity had postpoined the release of several films, most recently the Kristin Wiig/Zach Galifianakis comedy “Masterminds.” The studio conceded Tuesday that the October premiere has been pushed back indefinitely. It had already pushed the Halle Barry thriller “Kidnap” into 2016.

The filing, by the firm of Latham & Watkins on behalf of RKA, accuses Relativity of “vague response and obfuscation” to requests to settle the matter with RKA.

It says that RKA should be given some other adequate form of collateral equal in value to the unreleased films or “the right to enter [Relativity’s] premises and take possession of the unreleased film collateral.” The motion further states that RKA should then be allowed to search for and hire another studio to release the films in the U.S.

Senior lenders Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors are pushing ahead with their proposal to auction Relativity, or its pieces, on Sept. 16. The firms have made a $250 million “stalking horse” bid that they hope will set a floor for better offers by outsiders. If there is no higher offer, the investment firms would take control of the company.

Others owed money by Relativity, including unsecured creditors owed $89.9 million, are expected to file objections to that fast-track schedule. A hearing is set for Friday on the auction schedule.

 

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