Relativity Media filed for Chapter 11 bankruptcy on Thursday following weeks of financial turmoil and a public battle for survival. The company, which is primarily comprised of its film and television units, is now up for sale.
The company filed for bankruptcy in New York and will proceed to auction off the bulk of its assets. The sale will be conducted by Blackstone Group, supervised by the court and is expected to conclude by October 2015.
Joint ventures in which Relativity had a minority stake — Relativity Sports, Relativity EuropaCorp Distribution (RED) and Relativity Education — were not included in the filing.
The filing lists 50 unsecured creditors who will have to get in line at bankruptcy court to recover the money they’re owed. Those creditors include media buying company Carat USA, Technicolor, Deluxe, Cinedigm, Google, trailer house Buddha Jones, American Express and producer Andrew Panay.
CEO and Chairman Ryan Kavanaugh had been exhaustively trying to fulfill a $320 million debt obligation to a group of lenders, led by New York-based Anchorage Capital, but pressure from those lenders and increased public scrutiny forced top executives to consider Chapter 11 a little over a week ago.
With the Chapter 11 filing, Relativity has received a commitment of $45 million to fund debtor-in-possession financing.
According to a Relativity executive, Kavanaugh will continue as CEO and the company’s senior executive team will remain in place.
The studio said that it still intends to release two of the feature films on its slate, the Kristen Wiig heist comedy “Masterminds” and the Halle Berry thriller “Kidnapped.” But it has let go of “Jane Got a Gun,” the faith-based documentary “Hillsong” and an untitled Jesse Owens drama starring Anthony Mackie.
It is unclear what will happen to the rest of the films on the company’s slate, both those that are awaiting release as well as those in development.
The company on Tuesday began laying off 72 full-time and 22-part time staffers — about one fifth of the company’s 350 employees — in anticipation of the bankruptcy filing.
Under Chapter 11, the company would need the approval of a bankruptcy judge for most major financial decisions. Relativity’s largest secured lender, Anchorage, is likely to have a much bigger say in its operations.
“Relativity continues to pursue its mission as a next-generation global media company, and we remain firmly committed to our film and television businesses. The actions we are announcing today will protect our valuable franchise and allow us to emerge as a stronger, more focused company,” said Kavanaugh. “Our board and management team explored a variety of options to refinance Relativity’s debt, and we ultimately determined that the protection afforded by a court-supervised reorganization process will provide additional time and structure to achieve our financial and strategic objectives.”
Kavanaugh had worked out a solution to debts that had come due earlier this year, but Anchorage stepped in to exercise an option to buy up the company’s senior debt after a new financier, Catalyst Capital, had loaned the studio $130 million. This quashed a plan to surface $170 million in working capital that the company desperately needed.
Relativity’s perilous financial situation has escalated to the point that Hollywood studios it partnered with, including Sony Pictures and The Weinstein Company, moved to reclaim rights to their films for fear that the Beverly Hills-based company would be unable to fulfill its distribution obligations.
In the best light, the move could allow the company to reorganize without pressure from creditors, though it will be difficult to secure the multiple bank and hedge fund investments that drove the company in its heyday.
Kavanaugh founded Relativity with Lynwood Spinks in 2004 as a middleman company to finance multi-film slate deals with studios by arranging funding through banks and equity firms.
Relativity structured innovative finance deals for Marvel, Sony, Universal and Warner Bros., among others, and Kavanaugh’s maverick approach to film financing drew attention inside and outside Hollywood.
Relativity received $1 billion in credit from Elliott Management in 2007, and grew via the acquisition of the genre film label Rogue from Universal and deals with John Malone’s Overture Films and Richard Branson’s Virgin Produced.
Kavanaugh was ahead of the curve in recognizing the potential of China as a film entertainment market, and invested in that country’s SkyLand Film and TV Development Compnay in 2011. He also brokered deals in Germany and India.
By 2012, investors including Citibank, Merrill Lynch and Deutsche Bank had invested roughly $20 billion and Relativity had become a mini-major film and TV studio with its hands in digital, fashion, sports management and music.
Relativity eventually produced, distributed or structured financing for more than 200 movies, generating more than $17 billion in global box office. Its biggest hits was 2011’s swords-and-sandals epic “Immortals,” which grossed $226 million worldwide.
In its TV division, Relativity scored with low-budget reality series like MTV’s “Catfish: The TV Show” the Cooking Channel’s “Tia Mowry at Home” and Showtime’s “Gigolos.” The company’s biggest bet was a scripted small-screen adaptation of its 2011 Bradley Cooper sci-fi hit “Limitless,” which premieres on CBS this fall.
But the company ran into trouble in its film division, where a low-risk, low profit-margin strategy required most of the projects to succeed commercially. When that increasingly failed to happen, Relativity found itself scrambling to pay off a series of short-term, high-interest loans and extensions.
Over the past two years, the company’s biggest hit was the $13 million kids adventure film “Earth to Echo,” which took in $39 million domestically. But there were more films that disappointed, including “Don Jon,” “Out of the Furnace” and “November Man.”
This year, none of its four films — “The Woman in Black: Angel of Death,” “Black or White,” “The Lazarus Effect” and “Desert Dancer” — have been hits.
Moreover, pressure from creditors has left two of its more promising titles in legal limbo: “The Bronze,” a comedy out of Sundance, and the Natalie Portman Western “Jane Got a Gun.”
To read Relativity’s filing, click here — RELATIVITYBANKRUPTCY
[Pamela Chelin contributed to this report]