Relativity Media Expected to Miss $30 Million Payment
June 30 2016 - 6:50PM
Dow Jones News
Relativity Media LLC is expected to miss a previously scheduled
$30 million payment to its lenders Thursday, according to people
familiar with the matter, raising doubts about the company's
ability to stay afloat just months after emerging from
bankruptcy.
Relativity's plan to exit chapter 11 called for founder and
chief executive Ryan Kavanaugh to have raised $50 million in new
equity by Thursday, enough to pay off at least $30 million
Relativity owes to a group of hedge funds that bought the Hollywood
studio's more-lucrative TV unit in October.
But people familiar with the situation say Mr. Kavanaugh has yet
to raise the new funding and has sought an extension of the $30
million payment. These people say that the funds will likely give
Mr. Kavanaugh more time to come up with the cash.
A Relativity spokesman Thursday declined to say if the company
would pay the hedge funds by the deadline.
"Relativity is pleased with its progress to date and excited
about its upcoming releases," spokesman Edward Adler said. "We are
on target with our expectations and feel optimistic about the
future."
The studio won final court approval of its reorganization plan
in March, after convincing Judge Michael Wiles of the U.S.
Bankruptcy Court in Manhattan that it had a reasonable chance of
securing the new funds and releasing at least two films later this
year. The reorganization cut the company's debt by about $1 billion
but still left it with more than $300 million in liabilities on its
books, court papers show.
Before signing off on Relativity's bankruptcy-exit plan, Judge
Wiles said Mr. Kavanaugh needed to show proof that he had raised
$100 million in funding and had completed a previously announced
deal that would give actor Kevin Spacey and producer Dana Brunetti
creative control of the studio.
But Relativity struggled to complete the financing deals and
returned to bankruptcy court short of what the judge requested. Mr.
Spacey eventually reversed course and said he wouldn't be joining
studio.
Judge Wiles, however, agreed to let the company exit bankruptcy,
but only after Joseph Nicholas, a Chicago-based investor who teamed
with Mr. Kavanagh to help revive Relativity, said he was confident
the company could eventually raise a total of $100 million in new
equity included in its financial projections. "The calls are coming
in," Mr. Nicholas said.
Earlier in its bankruptcy, Relativity had hoped to raise as much
as $250 million in financing and $100 million in new equity, but
the company raised only a fraction of that amount before exiting
chapter 11, court papers show.
Relativity's bid to secure funding comes amid a continuing legal
battle with streaming giant Netflix Inc., a dispute that may have
played a role in keeping new investment deals out of reach. The
studio has a longstanding and lucrative contract with Netflix that
obligates the streaming giant to buy Relativity's films.
Ron Hohauser, a financial adviser for Relativity, said last
month at a court hearing that the Netflix litigation would cause
trouble for the company's fundraising goals. "Nobody's going to put
up [print and advertising] financing for a film that they know
that's already going to have been shown on Netflix," he said.
Netflix sparred with Relativity throughout the studio's
bankruptcy, objecting to the feasibility of the company's
reorganization during its chapter 11 case. Since then Netflix has
launched a legal battle with Relativity over two films, which it
has threatened to release on its streaming platform before their
debut in theaters. Relativity is relying on the theatrical releases
to generate revenue and to help pay off lenders.
A Netflix spokeswoman denied the streaming service was the cause
of the studio's woes.
"Relativity's solvency challenges predate both their emergence
from bankruptcy and any litigation with Netflix or other
companies," she said Thursday.
Last month Judge Wiles issued an order forbidding Netflix from
prematurely releasing the two films, a comedy starring Kristen Wiig
called "Masterminds" and a thriller with Kate Beckinsale called
"The Disappointments Room." Netflix has appealed the ruling.
Write to Tom Corrigan at tom.corrigan@wsj.com
(END) Dow Jones Newswires
June 30, 2016 18:35 ET (22:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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