Objections to the sale of Relativity Media’s television business were resolved at a hearing at U.S. Bankruptcy Court Tuesday, but issues were raised regarding the funding for Ryan Kavanaugh’s plan to buy the rest of the bankrupt company. It now appears that the Relativity founder and his investment group will have to rely on more debt financing and less cash up front in order to fund the purchase of the company’s film studio and other businesses.
Of the nine prior objections to the deal, all but one were resolved by the time of the Tuesday hearing, according to attorneys addressing U.S. Bankruptcy Court Judge Michael Wiles. The outstanding issue was adjourned, allowing the sale of the TV business — which includes CBS’s “Limitless” and MTV’s “Catfish” — to be closed today, if all proceeds according to expectations.
Anchorage Capital, Luxor Capital Falcon Investment Advisors — three hedge funds collectively owed more than $360 million by Relativity — as well as Colbeck Capital are among the new owners, paying $125 million for the business with the plan to reinvest and rename the company. Relativity filed for bankruptcy last summer citing liabilities of almost $1.2 billion and assets with a book value of just under $560 million.
But in the brief hearing, it came to light that details of the plan to see Kavanaugh take possession of the rest of the company were shifting. For one thing, the terms of the $35 million debtor-in-possession financing, which is needed to keep the company in operation until it can emerge from Chapter 11 in January, were changing to be less restrictive.
The amendments to that deal were negotiated late into the night, according to attorneys addressing Judge Wiles in the courtroom. No final agreement could be hammered out in time for the Tuesday morning hearing, but the parties plan to bring the finalized deal to the court for approval during a previously scheduled hearing on Thursday.
Meanwhile, the mix of cash laid out and debt assumed seems to be changing from the initial plan for Kavanaugh’s group to pay $60 million in cash to purchase parts of Relativity Media and to assume another $30 million in debt. Based on what was said in court, it looks likely that deal will now see more debt assumed to make up for less cash paid.
The reasons for the changes weren’t clear, although one attorney for Manchester Securities, one of Relativity’s biggest lenders, referred to a “funding failure” in court. With backers including VII Peaks Capital, investor Joseph Nicholas and the Ron Burkle-backed investment firm OA3, Kavanaugh hopes to acquire the parts of Relativity outside of its TV operations, such as its film studio as well as stakes in the company’s education and sports representation business.
“An investor group led by Chairman and CEO Ryan Kavanaugh has closed transactions to sell the television division for $125 million and to acquire the rest of the company,” said a spokesman for Relativity in a statement. “While the financial structure of the transaction has changed, we anticipate the Court to ratify this in the next 48 to 72 hours.”
The statement went on to say, “Relativity anticipates that it will emerge with all of its pre-chapter 11 assets and operating businesses, having sold the unscripted television business only, with almost 90 percent of its debt off of its balance sheet.”