Embattled Relativity Media is planning to file for Chapter 11 on Thursday after having exhausted all other avenues to address the pressing demands of its lenders, TheWrap has learned.
As part of that process, mass layoffs are underway on Wednesday, cutting the company’s operating costs ahead of bankruptcy.
CEO Ryan Kavanaugh made the ultimate decision to take the company into bankruptcy in order to reorganize its finances in an orderly way, after failing to come to agreement with lenders who are owed some $320 million in debt, individuals with knowledge of the company’s thinking told TheWrap.
The company on Tuesday began laying off staffers, with approximately 90 — about one quarter of the company’s 350 employees — expected to be eliminated.
Under Chapter 11, the company would need the approval of a bankruptcy judge for most major financial decisions. Relativity’s largest secured lender, New York-based Anchorage Capital, is likely to have a much bigger say in its operations.
Kavanaugh had managed to secure commitments of $250 million in new equity, but was unable to get his lenders to extend a deadline to pay back the hundreds of millions in loans taken out.
Chapter 11 might provide a silver lining for Kavanaugh’s embattled company, as it would allow Relativity to reorganize its finances in an orderly fashion through the courts. It would also give reprieve from paying some of its unsecured lenders.
While Kavanaugh had worked out a solution to debts that were owed earlier this year, one lender, Anchorage Capital, stepped in to exercise an option to buy up the company’s senior debt after a new financier Catalyst Capital had loaned $130 million.
This quashed a plan to surface $170 million in working capital which the company desperately needed.