Relativity Media Prepared to File for Bankruptcy Wednesday, Plans 90 Layoffs (Updated)

Ryan Kavanaugh’s studio continues to battle for survival and a long-term recapitalization plan

Relativity Media is expected to file Chapter 11 bankruptcy on Wednesday, two individuals with knowledge of the studio plans told TheWrap.

CEO Ryan Kavanaugh is weighing the benefits of a bankruptcy filing as he struggles to work out deals with its lenders over $320 million in debt obligations. He is expected to make a final decision on Tuesday night, one of the individuals said. The other individual said the filing was expected by Wednesday morning.

The company has also begun a major round of layoffs, targeting about 90 people out of a staff of 350, according to one knowledgeable insider. The downsizing began on Tuesday.

One of the individuals said if the company files Chapter 11, Kavanaugh would remain CEO and chairman to help the company emerge with a cleaner capitalization structure.

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 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.

An individual with knowledge of Kavanaugh’s discussions said the company currently has commitments for $250 million in equity, but this will only close if the debt matter is resolved.

A spokesman for Relativity declined to comment on the matter though bankruptcy has been on the table for a week, as TheWrap reported on July 20.

“It is not in the company’s interest or our lender’s interest to file for bankruptcy,” a company insider said at the time, but consider the difference a week makes.

Relativity’s partners on films like “The Bronze” and “Jane Got a Gun” have taken action to reclaim their movies for fear that the company cannot fulfill distribution obligations in light of the financial mess.

Kavanaugh and a P&A lender have also visited one another with contentious lawsuits over money allocation for the promotion several Relativity films.