Relativity Media Files for Chapter 11 Bankruptcy

Relativity Media Files for Chapter 11 Bankruptcy

Relativity Media, the third largest mini-major film studio in the world, has just announced that it will file for Chapter 11 bankruptcy. Following the company’s 11 years of operation, CEO Ryan Kavanaugh confirmed that Relativity Media will put itself up for auction.

The company reported that it filed Chapter 11 bankruptcy protection a month after receiving an extension to pay-down over $250 million in overdue debt obligations. In court filings, the studio claimed liabilities totaling $1.2 billion, with approximately $560 million in assets at book value. According to the Wall Street Journal, the company also listed the amount of its unsecured trade debt at $89.9 million with over 1,000 creditors, including Carat USA, which was owed more than $36.8 million.

Currently, the company has attracted backing from several Wall Street firms, including Yucaipa Cos, which holds a significant equity stake in the studio. Relativity Media also reached an agreement with some of its lenders including Falcon Investment Advisors, Luxor Capital Group, Anchorage Capital and Colbeck Capital LLC to secure a $45 million bankruptcy loan to fund company operations throughout the reorganization process. In an interview with Variety, a source close to the company’s senior lenders explained that the company is insolvent.

“This is a hopelessly insolvent enterprise,” the source commented.”There is no scenario for value to come back to anything near enough to pay even the bulk of the debt owed to the senior debt holders. The only truly solvent major enterprise inside Relativity, going forward, is the TV business.”

With the auction looming, Relativity Media has hired law firm Jones Day to handle the Chapter 11 bankruptcy case, with Blackstone Group LP and FTI Consulting to handle the bankruptcy auction and sales process.

The reorganization plan

In a statement, Relativity Media officials announced that the company had filed customary first day motions with the Bankruptcy Court to request the authority to pay employee wages, salaries and benefits. However, in the statement, the studio also announced plans to continue business operations through the reorganization process, including layoffs of 75 employees and a complete shutdown of the M3 Relativity fashion division.

As part of the auction process, Relativity Media reported in bankruptcy documents that an agreement had been reached with RM Bidder L.L.C. through which the company would sell off its assets to a group of its lenders.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.