Ryan Kavanaugh’s Relativity Considers Bankruptcy Amid Urgent Debt Pressure

Indie studio is virtually at a standstill as it seeks to raise funds before the end of July, an insider tells TheWrap

Last Updated: July 20, 2015 @ 4:26 PM

Ryan Kavanaugh’s Relativity Media is weighing filing Chapter 11 bankruptcy after weeks of seeking new funding to respond to demands by its lenders.

The next 10 days will be crucial for the company, insiders close to the company tell TheWrap, as Kavanaugh seeks a one-year extension on his $320 million in debt as well as new equity investment.

An individual close to the company told TheWrap that “it is not in the company’s interest or our lender’s interest to file for bankruptcy.”

However, Chapter 11 protection could be appealing in some ways because it would allow Relativity to reorganize its finances in an orderly fashion through the courts and would halt the need to pay current vendors.

These insiders say the studio will need to resolve the current crisis by the end of July, just 10 days away, and that new wrinkles change the company’s financial situation on a daily basis.

The studio is virtually at a standstill from a business perspective as the financial status of the company continues to play out. Executives already moved the Zach Galifianakis comedy “Masterminds” to October from a summer release. The studio on Monday moved another release, Halle Berry’s “Kidnap,” to a 2016 release.

The company declined to comment for this story.

The embattled indie film distributor had been attempting to satisfy nearly $150 million in senior secured debt, TheWrap reported last week, on top of squabbling with subordinate debt holders and attempting to find equity investors to finance ongoing and new film projects.

The Toronto-based firm Catalyst Capital recently agreed to absorb $130 million in debt, which was then bought up by senior creditors led by New York-based Anchorage Capital, according to Kavanaugh’s statement last week.

But while Catalyst had agreed to give Relativity a one-year extension on its debt repayment, an insider close to the company indicates that the studio has not yet reached a similar accord with Anchorage and the new lenders.

Relativity Media, founded in 2004 by Ryan Kavanaugh, is one of Hollywood’s mini-major film studios, which produces, acquires and distributes films, and has divisions in television, sports, music and fashion.

But the company’s finances have become a complex hive of ownership and obscure terms as Kavanaugh has needed multiple rounds of debt and equity to finance his growing empire that has not seen solid hits at the box office. The precise state of Relativity’s health has been a subject of speculation, with reports of near-collapse dominating lately. Debt obligations were due in May, and Kavanaugh has negotiated multiple extensions with his creditors.

In April, the company secured a $250 million investment from Bay Area-based VII Peaks Capital, supposedly to help finance the company ahead of going public. Then in May, two board members and investors from Colbeck Capital were pushed off the board of directors after clashing with Kavanaugh over control of the company.

Last week, Kavanaugh and one of his holding companies were sued for failing to pay $7.5 million allotted for the promotion of upcoming Relativity releases such as “Masterminds” and Kate Beckinsale’s “The Disappointments Room.”

Kavanaugh eventually hit back, and publicly accused Colbeck and former Fox executive Tony Vinciquerra of conspiring to buy the company out from under him.