Excerpt from Relativity Media LLC’s Corrected Disclosure Statement for Plan Proponents’ Plan of Reorganization Pursuant t...
November 24 2015 - 7:08PM
Business Wire
Events Leading to Chapter 11 Cases
Prior to the maturity date of the Cortland TLA/TLB Facility,
Relativity sought to raise additional funds for its operations and
to service existing debt. On or about May 11, 2015, these efforts
resulted in the issuance of 5,000,000 Class E Units in Relativity
Holdco to entities affiliated with an individual investor and VII
Peaks in exchange for $62,500,000 gross cash proceeds.
Simultaneously with the issuance of such equity interests, and at
various times subsequent thereto, holders of the aggregate amount
of 96.5296 Class C Units exchanged such Class C Units for an
aggregate of 6,695,648 Class E Units pursuant to exchange
agreements entered into concurrently with the Class E Unit issuance
on May 11, 2015. In addition, Relativity had lined up in excess of
$400 million in a combination of debt and equity commitments to
refinance or pay off the Cortland TLA/TLB Facility prior to its
maturity date. However, unbeknownst to Relativity, certain insiders
and fiduciaries of the Company thwarted Relativity’s debt and
equity raise in breach of their fiduciary duties and in
interference with Relativity’s refinancing process.
Specifically, Colbeck Capital Management (“Colbeck”),
while acting in multiple capacities including while having
representation on Relativity Holdings’s Board of Managers, while
being paid as consultants to Relativity, and while acting as agent
for the TLA/TLB facility with significant management and financial
oversight powers and duties, breached their fiduciary duties and
other obligations and agreements, through a clandestine plan
designed to effectuate a change in control of Relativity for their
benefit and to the detriment of the company and its other
stakeholders. With full knowledge of Relativity’s debt and equity
financing efforts, Colbeck intentionally diverted sources of equity
and debt financing away from the company’s efforts and instead
sought to have such sources committed to their clandestine plan.
Colbeck recruited Relativity’s then CFO Andrew Matthews and then
President of Production Matthew Alvarez to join meetings with
investors to further promulgate the false perception that
Relativity, its Chairman and CEO, and the Board were aware of and
supportive of the Colbeck plan. Relativity believes that Colbeck
represented to third parties that its efforts were Board authorized
and approved, when they were not. As a result of the actions of
Colbeck and its co-conspirators, Relativity was unable to conclude
its debt and equity refinance efforts and on the maturity date of
the Cortland TLA/TLB Facility, over $360 million in debt became due
and payable as of the Petition Date and Relativity was unable
to make payment on the Cortland TLA/TLB Facility.
On June 1, 2015, Relativity entered into a forbearance agreement
with a majority of TLA Lenders and a majority of TLB Lenders
(the “TLA/TLB Forbearance Agreement”). On the same day,
Relativity executed a forbearance agreement with the Ultimates
Lenders under the Ultimates Facility
(the “Ultimates Forbearance Agreement”), and
thereafter, on June 5, 2015, Relativity entered into a forbearance
agreement with the P&A Lenders under the P&A Facility (the
“P&A Forbearance Agreement,” and collectively with the
TLA/TLB Forbearance Agreement and the Ultimates Forbearance
Agreement, the “Forbearance Agreements”). On June 25, 2015,
the Forbearance Agreements expired in accordance with their
terms.
In early July 2015, Catalyst Capital Group, a Toronto-based
hedge fund (“Catalyst”) purchased the outstanding Cortland
Term Loan A debt and became the sole lender under the Cortland Term
Loan A. Anchorage Capital Master Offshore, Ltd. and Luxor Capital
LLC, as lenders under the Cortland Term Loan B (the “Purchasing
TLB Lenders”), promptly provided notice of their intent to
exercise their right under Section 10.17 of the Cortland TLA/TLB
Financing Agreement to purchase the outstanding debt under the
Cortland Term Loan A. On July 9, 2015, the
Purchasing TLB Lenders, along with Catalyst (also a lender under
the Cortland Term Loan B) purchased all of the Cortland Term Loan A
debt.
On July 16, 2015, the Cortland Borrowers and the Cortland
Lenders entered into Amendment No. 1 to the Cortland TLA/TLB
Financing Agreement, pursuant to which certain of the Cortland
Lenders funded $15 million of additional Term Loans (“Term
A-1 Loans”) of which $7.5 million was funded on July 16, 2015
and $7.5 million was funded on July 20, 2015. The Term A-1 Loans
had a maturity date of July 27, 2015 and interest was payable
in cash at a rate of 15% per annum. On July 27, 2015, the Term
A-1 Loans matured.
Beginning in April of 2015, funds that would otherwise be
available to be transferred to the cash collateral account and
subsequently transferred to the Debtors’ operating accounts to be
used for working capital, were swept by the Ultimates Lenders. The
sweeps continued through July of 2015, and in aggregate totaled
approximately $32,541,661.20. On July 17, 2015, the Ultimates
Lenders swept an additional $17,881,299.24 on deposit in the
participations and residuals account, a bank account at OneWest in
RMLDD Financing’s name that is used to pay participations and
residuals to the producers, performers, writers and other
individuals or entities entitled to compensation for the
exhibition of the content developed, produced, and/or distributed
by the Debtors and the Non-Debtor Subsidiaries. The swept funds
were applied to the outstanding balance of the Ultimates
Facility.
Relativity experienced severe liquidity constraints and
increasing limitations imposed by the Forbearance Agreements and
the new debt issuances. With over $350 million in outstanding
matured secured debt and unable to finalize any further
financing due to a variety of factors, Relativity determined it was
in its best interest to file for bankruptcy protection.
Link to original
filing:https://dr201.s3.amazonaws.com/rm/15-11989/dk001009-0000.pdf?AWSAccessKeyId=AKIAIRPMP2HWEK22XJ3A&Expires=1448444167&Signature=oIYO8y2fPL7LOrr1pd4%2F2FxHqPw%3D
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version on businesswire.com: http://www.businesswire.com/news/home/20151124006360/en/
For Relativity Media LLCJustin Dini, 415-671-7676