Relativity still stuck in limbo

Same challenges

LOS ANGELES, July 12, (RTRS): Not long before Ryan Kavanaugh’s Relativity Media won its release from bankruptcy in April, the ebullient CEO said he would now be leading a “well-capitalized media company that is well positioned for growth and success.” His financial adviser, from the firm of Houlihan Lokey, predicted the reborn Relativity would attract a “feeding frenzy” of new investment.

Kavanaugh’s company did shed a mountain of debt, and many employees, during its eight months under Chapter 11 protection. But today, the Beverly Hillsbased entertainment concern finds itself with many of the same challenges that dogged it even before it was forced to seek bankruptcy protection a year ago. It’s still struggling to attract new investment and now has released its grip on a pair of key film distribution deals.

Relativity needed senior creditors to agree at the end of June to extend the date for the company to make a $30 million debt payment, say several sources familiar with the situation. The payment is just part of the $57.8 million the company projected it would repay this year, according to a bankruptcy court filing. It’s yet to be made public where Relativity will find the funds to allow it to meet those obligations.

Kavanaugh

Offered

One individual close to the company offered assurances that a solution is just around the corner, with an infusion of new equity likely to be announced this week. And Kavanaugh said in a statement last week: “We have concluded an agreement with a large strategic partner involving new equity.” The company declined to provide details of the plan to repay the $30 million debt, which was first reported by the Wall Street Journal.

Relativity’s travails come nearly a year after it filed for bankruptcy protection, listing $1.2 billion in liabilities and assets with a book value of $560 million. Though Kavanaugh had touted a formula for defraying costs and utilizing an algorithm to avoid cinematic bombs, his company had its share of screen losers — including the Liam Hemsworth thriller “Paranoia,” and “Machine Gun Preacher,” with Gerard Butler as a one-time biker who rescues child soldiers.

The company did not come up with the $100 million in new equity investment it initially promised US Bankruptcy Court Judge Michael Wiles that it would obtain before exiting Chapter 11. Instead, Relativity secured two loans for a total of $75 million — one from Midcap Financial Trust and the other from Kavanaugh’s co-chief executive, Chicago investor Joseph Nicholas. The loans were part of a financial plan substantial enough to persuade Wiles to approve the company’s reorganization plan in March.

Producing

Wiles’ approval came despite the fact that the company also delivered only half of the highly-touted new management team it said would lead it to a more profitable future. Producer Dana Brunetti agreed to head the Relativity film division, but his long-time producing partner, Oscar-winning actor Kevin Spacey, bowed out.

Despite those challenges and the struggles of many film companies, Relativity projected a remarkable comeback -its bankruptcy court filings anticipated that all 22 of the films it planned to release over the next three years would be profitable.

But a couple of those highlytouted projects are now headed to other distributors. Relativity said it simply passed on distributing the two films — “Hunter Killer” and “Den of Thieves” — by choice. But others familiar with the projects question whether Kavanaugh’s company had the financial means to market and release the movies.

Since May, the mini-studio has had a prospectus out to potential investors, seeking to raise up to $150 million and valuing Relativity at $500 million. But, since then, the company and its financial advisers have not announced any new investors.

“Hunter Killer” — produced by Neal Moritz and starring Gerard Butler, along with Gary Oldham and Common — became the object of a fierce dispute during Relativity’s bankruptcy. Moritz and others associated with the film sued, saying that Relativity had fraudulently induced them into a deal to distribute the film, though they knew their financially-fragile company was “nothing more than a house of cards.” Relativity rejected the allegations as “baseless and patently false.”