EXCLUSIVE: Don’t blame yourself if you’re struggling to figure out where things stand in Relativity Media’s effort to extricate itself from Chapter 11 bankruptcy protection. A lot of important decisions were made this week in a case that’s unusually tortuous, even for bankruptcy attorneys and financiers who feast on complexity.

One of them likened the multiple all-night negotiations leading to those rulings as a “death march.”

CEO Ryan Kavanaugh’s studio is known for movies including The Fighter, Limitless, Safe Haven and Act of Valor, and TV shows including CBS’ Limitless, MTV’s Catfish: The TV Show, and Lifetime’s Kim Of Queens. But the folks who charge high billable hours fees to trudge to U.S. Bankruptcy Court in New York see it as a Rube Goldberg financial structure that ended 2014 with more than twice as many liabilities as assets — $1.18 billion compared to $560 million in assets.

Here’s a look at what’s changed — and what’s next.

Q: What did the U.S. Bankruptcy Court decide to do with Relativity? 
A: Relativity will be split. Several hedge funds led by Cortland Capital will buy Relativity Television, the company’s most profitable operation. The remaining assets, including film, will remain at Relativity Media under CEO Ryan Kavanaugh and – for now — Chief Restructuring Officer Brian Kushner. The changes will take place on October 20, according to the court’s schedule.

Q: Why did Relativity sell TV but not the Film division and other businesses?
A: Relativity conducted a bankruptcy auction last week. Nobody made an offer for the entire company. The Cortland group made a bid for the television operation — and it was the only one to do so.

Q: What is Relativity CEO Ryan Kavanaugh’s involvement in the company now?
A:
It has changed considerably. He has no control over TV operations. He is trying to hold onto the Film division. But to do so, he’ll have to present a capitalization plan that’s acceptable to Bankruptcy Court Judge Michael Wiles. Kavanaugh plans to do that by January.

Q: Who besides Cortland is in the group buying Relativity Television?
A:
It includes Anchorage Capital, Falcon Investment Advisors, and Luxor Capital. They were frequently referred to in the case as Stalking Horse Bidders, RM Bidders, and BidCo.

Q: How much will they pay for Relativity Television?
A: They didn’t directly shell out any cash. They forgave $125 million worth of Relativity’s debt to them in return for the TV business.

Q: Is Relativity Television a big business?
A: Not really. Relativity says it accounted for just 19% of its $501.1 million in revenues in 2014. The unit mostly produces low budget reality shows for cable. But it’s growing, and could catch lightening if one of its programs – such as CBS’ new Limitless — turns into a hit.

Q: When the TV division’s sold, will that take Relativity Media out of bankruptcy?
A: No. The parts of the company that weren’t sold — including Film – will remain under Chapter 11 bankruptcy protection.

Q: Why did the Court approve the TV deal?
A: Relativity told the Bankruptcy Court that if it rejected the $125 million debt forgiveness plan then the studio “will have one remaining alternative: the shutdown of [the TV] operations and a likely resultant piecemeal liquidation of their assets.”

Q: Hedge funds don’t know anything about TV. What are they going to do with it?
A: As part of the agreement, Cortland said it will offer jobs to the two executives who currently run Relativity Television — Thomas Forman and Andrew Marcus – as well as “the employees of the television business, including corporate accounting employees handling participations and residuals.” The new owners have three months to rebrand Relativity Television.

Q: Will it continue as a stand-alone company?
A: We’ll see. Some people believe that the operation will wind up in an alliance or folded into MGM, in which Anchorage owns a substantial stake.

Q: After the television deal, how much debt does Relativity have to repay?
A: The company ended 2014 with liabilities more than twice the amount of its assets. But only some of the obligations involve Relativity Media, the parent company. Subsidiaries and even entities producing specific films took out their own loans. The agreements made over the last week deal with parent company’s debts, primarily to the Cortland group.

Q: What are the Cortland loans and why are they so important?
A: In 2012, Relativity borrowed $250 million from Cortland in the form of two, $125 million loans. They precipitated the bankruptcy filing: The debts came due June 1. Despite being granted an extension, the studio still couldn’t pay up. This week’s TV deal wipes out one of those loans. It had an extraordinarily high interest rate of 15% a year, rising to 17% if there was a default. With interest folded in, Relativity owed $218.8 million.

Q: If the Cortland group took a $125 million asset in exchange for $218.8 million in debt, then it took a loss?
A: Yes, at least on paper. But loans often are privately bought and sold. We don’t know how much the current owners actually paid.

Q: Still, why would they agree to accept a $125 million property in exchange for a loan that’s worth much more?
A: Companies seek Chapter 11 protection when they don’t have enough money to pay all of their debts. Creditors try to make the best deals they can. That often means they have to settle for less than they’re owed.

Q: What about Cortland’s other $125 million loan?
A: There’s a complicated plan to deal with this obligation, which should be worth $147.2 million based on its interest of 10% a year, rising to 12% in a default. But the easiest way to think of it is that Relativity’s debt to Cortland will be bought by Kavanaugh and financial backers – VII Peaks Capital, Joseph Nicholas, and OA3.

Q: Who are they?
A: VII Peaks Capital is a San Francisco-based investment firm that bought $62.5 million of Relativity’s equity early this year, and also has a seat on the board. And Joseph Nicholas is an independent investor. OA3 is owned by billionaire Ron Burkle. He joined Relativity’s Board of Managers in 2012 after he paid $350 million to take over much of Elliott Management’s debt.

Q: What is Ron Burkle’s role with Relativity and Kavanaugh now?
A: Kavanaugh seems to have overstated Burkle’s relationship in the past several days in the press. The reality is that The Yucaipa Companies’ founder has come aboard in business deals of his own through OA3, one of the companies that he owns, and through an investment in Relativity Sports. VII Peaks Capital and independent investor Nicholas (an investor who Kavanaugh found) and OA3  are dealing directly with Cortland.

Q: What’s the deal with Burkle’s investment in Relativity Sports?
A: This is not part of the Relativity bankruptcy proceedings, although the people and interests overlap. Relativity Sports represents 400 athletes in the NBA, NFL and MLB. Happy Walters, who was instrumental in building the company, left under mutual agreement. He is looking to a new company. Burkle agreed to put $30 million into Relativity Sports to help it grow and add personnel.

Q: Does Relativity own Relativity Sports?
A: It’s mostly owned by agents, at this point; Relativity’s share is estimated to be less than 25%. Relativity Sports is part of a joint venture that’s 59.7% owned by Relativity Sports Management — which is itself a joint venture that’s half owned by Relativity Media.

Q: Is it a good business?
A: Yes, although it’s been hampered by rumors of multiple lawsuits, we hear that there are no lawsuits. Relativity Sports’ agents have negotiated some of the biggest contracts in Major League Baseball, and represent more than 75 players.

Q: Back to the bankruptcy: How will Burkle’s OA3, VII Peaks Capital and the private investor buy Cortland’s $125 million loan?
A: The first part is that Kavanaugh and Co. will pay $60 million in cash on October 20 for $95 million worth of the $125 million.

Q:  Who specifically will write that $60 million check?
A: That has not been sorted out yet, we hear.

Q: What about the remaining $30 million?
A: Kavanaugh and his allies will pick up that part, too, in return for a two-year, $30 million note that guarantees Cortland a lower interest rate — paying 8.5% a year, rising to 10.5% if there’s a default. With the payment and the note, Relativity’s obligation to Cortland will shift to the investment group made up of VII Peaks Capital, Nicholas with Kavanaugh and OA3. VII Peaks Capital and OA3’s participation is comparatively small.

Q: Does that take care of Cortland?
A: Not yet. When Relativity filed for bankruptcy, the Cortland group agreed to help keep the studio going by providing an additional $49.5 million in debtor-in-possession (DIP) financing.

Q: What does that mean?
A: The term “debtor in possession” refers to a company that remains in business after filing for Chapter 11 bankruptcy protection. The management of the debtor company (in this case Relativity) is still in control — or “in possession” of the company — even though it has to ask a bankruptcy court for permission to do anything that isn’t considered part of ordinary business.

Q: Who’d throw good money after bad by lending to a bankrupt company? Why would the Cortland group care about keeping Relativity going?
A: It’s the biggest creditor, and it stands a better chance of being repaid if the studio remains in business and generating revenues than it would if Relativity had to be sold for scrap. Besides, the DIP loan comes with attractive terms.

Q: How attractive?
A: At a time of low interest rates, Relativity agreed to pay annual interest of at least 10.5% — possibly more if the the Adjusted Eurodollar Rate (also known as the London Interbank Offered Rate, or LIBOR) rises above 1%. That’s a lot more than investors can collect from risky high yield bonds, also known as junk bonds.

Q: It’s worth zero, though, if Relativity can’t pay.
A: The DIP lenders also have covenants that restrict Relativity’s ability to spend and make business decisions. The lenders have to be paid immediately if the company is sold, and they are first in line to be repaid if it collapses.

Q: So what’s the status of Relativity’s DIP loan?
A: Here’s where Relativity’s first big investor, and second biggest creditor — Paul Singer’s Elliott Management —  enters the picture. One of its subsidiaries, Manchester Securities, says that the studio owes it about $137.1 million. But it was behind Cortland (the formal term is “subordinate”) in the debt repayment pecking order, which means it had lower odds of being repaid. Manchester agreed to pay Cortland $35 million to assume the $49.5 million DIP loan.

Q: When Relativity repays the DIP, will it give Manchester $35 million or $49.5 million (both plus interest)?
A: Relativity will pay $35 million, plus interest. Don’t be surprised, though, if there’s an arrangement to swap debt for equity — which frequently happens in bankruptcies.

Q: When is Relativity supposed to repay Manchester for the DIP loan?
A: It matures on October 20 but since the studio’s still bankrupt, that’s expected to be extended until it reorganizes.

Q: When will that take place?   
A: Relativity says that it will have a reorganization plan by early January. That means it now has to borrow even more money.

Q: For what?
A: It has used up the initial $49.5 million DIP loan;  it will need another one to keep operations going between October 20 and the reorganization. Relativity also needs to raise enough cash to satisfy Judge Wiles that it can continue to handle day-to-day expenses once it’s no longer protected by Chapter 11.

Q: How much will it have to raise?
A: We don’t know that yet. Remember, though, that Relativity will be a smaller company, with fewer cash needs, once the television operation is gone.