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What’s Next for Relativity Media: 5 Takeaways From Latest Bankruptcy Court Hearing

Studio has an updated sale timeline, more cash flow and — finally — cooperation from most of its creditors

Relativity Media’s skies are clearer following a significant and lengthy bankruptcy hearing in New York Tuesday in which U.S. Bankruptcy Court Judge Michael Wiles cleared the pathway for an October sale of the studio’s film and TV assets.

Barring the emergence of any new competitive bids, Ryan Kavanaugh’s company will be sold for $250 million to a stalking-horse group made up of senior lenders Anchorage Capital, Falcon Investments and Luxor Capital.

The sale is due to be completed by the end of October. The decision comes after weeks of contentious court filings by subordinate lenders and more than a dozen objections from smaller creditors seeking to recoup some portion of what they are owed by the bankrupt studio.

As Relativity moves closer to a scheduled October 5 sale hearing, TheWrap has flagged five takeaways from Tuesday’s proceedings:

1. Movie Stars Will Still Get Paid
Fear not for Bradley Cooper’s royalties from “Limitless.” Henry Cavill will be able to afford sandals after “Immortals.”

Manchester Securities, an original backer of the company, objected last week to Relativity’s proposal that the studio prioritize payment of residuals and other payments to creative unions like the Screen Actors and Directors Guild.

After some negotiating, Manchester dropped its objections and acknowledged the studio’s need to stay in good graces with the creative guilds so that actors, writers and director would participate in ongoing Relativity projects like the new CBS drama based on Cooper’s film “Limitless.” The working creatives will get their due, which currently amount to $36 million in past-due funds, according to the documents.

2. Manchester Sits at Peace Table

After filing a biting 11th-hour objection to the proposed stalking-horse bid for Relativity’s assets, Manchester Securities seemed to back down on Tuesday. Manchester, a subsidiary of the hedge fund Elliott Management and early investor in the studio, dropped its objections in exchange for access to Relativity sales data and a seat at the table as a consultant in the sale, among others points. Time will tell when and how it will see its $137 million investment returned.

3. Relativity Has Cash to Operate

The senior lenders provided a loan fund of roughly $45 million to Relativity so it could operate during Chapter 11 proceedings. But until now Wiles handed out two modest portions totaling just over $5 million. On Tuesday, he released the remainder of the funds, increasing the total pot to $49.5 million to account for the additional two weeks he added to the sale timetable. That should be enough to pay vendors for ongoing TV productions as well as buy more Post-Its.

4. The RKA TKO

One of the biggest surprises in the long legal proceedings on Tuesday: RKA Film Financing, a P&A lender that had emerged as Relativity’s most litigious creditor, quietly caved. “We think we need to get on with business here,” an attorney for RKA told the court on Tuesday, withdrawing its numerous objections to the sale and its litany of accusations against Relativity and Kavanaugh.

RKA had claimed that Kavanaugh misappropriated funds meant for the promotion of four movies, including Halle Berry’s “Kidnap” and Kristen Wiig’s “Masterminds.” Kavanuagh in turn accused the company of exploiting Relativity’s weakened position thanks to its collapsed debt-equity structure.

Bygones, though, are apparently bygones between the two sides. RKA is still owed nearly $115 million; Relativity had no comment on what sort of arrangement was reached between the two parties.

5. Turning Timetables

The good news for everyone following the unraveling of Relativity: Even according to the amended sale process, the nightmare will be over by Halloween. Wiles’ updated timeline allows for additional bids for all or some of Relativity’s asset by Sept. 25, with qualified bids notified by Sept. 28 and an auction to occur on Oct. 1.

Wiles proposed a hearing to consider final approval of the sale, whether from the auction or the stalking-horse bid, on Oct. 5 — with the sale to formally close by Oct. 20.