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Judge clears path for sale of troubled film studio Relativity Media

Judge clears path for sale of troubled film studio Relativity Media
Ryan Kavanaugh, chief executive officer of RelativityMedia. (Paul A. Hebert/Invision/AP)

A New York bankruptcy judge has cleared the path for the sale of troubled film studio Relativity Media, which declared Chapter 11 last month.

At a hearing Tuesday in Manhattan, Judge Michael Wiles approved the auction schedule proposed by the company to finalize a sale in October. Wiles also gave the go-ahead for $49.5 million in debtor-in-possession financing to keep the studio running as potential bidders circle.

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Relativity, led by chief executive and founder Ryan Kavanaugh, filed for bankruptcy protection on July 30 after it failed to come up with the money to pay down its debt.

The company, known for films such as "Act of Valor" and "Limitless," lists nearly $1.2 billion in liabilities and a book value of $560 million.

Multiple companies, including lenders, licensees and other partners, filed objections in the weeks leading up the hearing, including financial firm Macquarie, media giant Viacom Inc. and online video streamer Netflix Inc.

Some balked at the originally proposed sale timeline, arguing that it was too short a period to allow an adequate auction.

But Relativity was able to reach agreements with most of the parties ahead of the hearing. Two of the most vigorous objections — from Manchester Securities and RKA Film Financing LLC — were withdrawn during the hearing.

"From Relativity's perspective, they should certainly be pleased that the bidding procedures were approved and that the sale process can go ahead," said Jessica Steinhagen, a distressed-debt legal analyst with Reorg Research.

Manchester, a subsidiary of early Relativity backer Elliott Management, is owed $137 million, according to court documents. RKA Film Financing, which has sued Kavanaugh and called him a "con man" over what it says are misspent marketing funds, is owed about $85 million.

A group of lenders has set a starting bid for Relativity at $250 million. The so-called stalking-horse bidders — Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors — hope the company will sell for considerably more.

The bankruptcy proceedings, led by investment firm Blackstone Group, have generated some interest from potential bidders who could buy Relativity as a whole or in pieces. Blackstone said in a court hearing Friday that there have been dozens of calls with possible investors. It has opened a data room with 40,000 pages of documents to interested parties and began its marketing outreach in earnest on Aug. 12.

Nearly 100 potential investors have been contacted, and 20 parties have signed non-disclosure agreements; 14 have accessed the data room.

The schedule now calls for a sale to be closed by Oct. 20. Bids come due Sept. 25, and the auction takes place Oct. 1. Relativity had originally hoped to hold the auction in mid-September.

"The main issue for the parties initially was the timeline," Steinhagen said. "Since virtually all the parties agreed to the new timeline, the judge agreed to it as well."

Relativity launched in 2004 and made a name for itself co-financing movies such as "Bridesmaids" and "The Social Network." But a string of box-office duds and a heavy debt load drove the mini-major studio to bankruptcy court.

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At the company's first bankruptcy hearing in late July, Judge Wiles approved just $9.5 million of the $45 million in financing Relativity had sought, citing questions about whether the proposed sale timeline would be long enough to attract bids.

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