U.S. Bankruptcy Court Judge Michael Wiles resolved one of Hollywood’s most sensational financial stories today: Nearly eight months after Relativity Media defaulted on loans and filed for Chapter 11 protection, he ruled that the beleaguered studio can resume doing business without his supervision.
But before this remarkable case begins to fade from view, we thought this would be a good time to take a stroll down memory lane and recall some of its most interesting moments — including many assertions and promises made by Relativity and its CEO Ryan Kavanaugh that, to put it gently, didn’t survive the test of time.
Claim: Relativity filed for bankruptcy at the end of July 2015. But as late as April 2015, while the company hemorrhaged cash, Kavanaugh still said that he wanted to take the studio public in 2016. Indeed, Relativity said in April 2015 that it had received a $250 million investment from VII Peaks that would help with the IPO plan.
Reality: The IPO idea was a fantasy: Relativity ended 2014 with $1.18 billion in liabilities, and generated just $501 million in revenues for the year, it later reported. As for VII Peaks’ $250 million — it ended up investing just $62.5 million, according to Relativity’s bankruptcy filing. The companies locked horns throughout the proceedings.
THIS ONE GOES TO CHAPTER 11
Claim: When Deadline broke the story last June that Relativity might default on a $320 million loan, the company told us that a Chapter 11 restructuring was not on the table.
Reality: The company filed for Chapter 11 one month later after it missed creditor payments, even after it was given an extension.
THE WALKING DEBT
Claim: On June 25, as it became apparent that Relativity was near collapse, the company released a statement saying that it was “close to concluding an overall deal with our lenders and new equity partners which will position the company for long-term growth.” It added that “We are highly confident in the company’s future.”
Reality: By then lenders had already forced Relativity to hire a restructuring consultant: FTI Consulting’s Brian Kushner. He told the court later that although most Relativity execs “understood the necessity of restructuring [its] debt,” Kavanaugh was so determined to find new investors that he “actively delayed the efforts of [Relativity’s] employees or advisors to adequately prepare for bankruptcy.”
Claim: Late last year, Kavanaugh accused VII Peaks of reneging on an agreement to contribute $30 million to his effort to buy the studio’s senior debt. Relativity said in an October press release that VII Peaks had “misrepresented their capital capabilities and oversight” and was “attempting to obfuscate its own failure to perform by shifting responsibility to the investors.” It likely would “concoct some claim of fraud in an effort to disguise the simple fact that they could not close. We have also learned this is not the first time they have misrepresented their capital capabilities and oversight.”
Reality: A few days later Relativity dropped the adversary proceeding and told the Bankruptcy Court that it “has agreed to contact verbally the media outlets that ran a statement Relativity made … and ask those media outlets to retract the Statement.”
WOULD YOU BELIEVE?
Claim: Kavanaugh reportedly stood before his employees in June 2015 and said that he had more than $300 million in equity funding coming together. That included investors from India and China.
Reality: That never materialized. Some of the staffers he addressed were subsequently laid off.
Claim: Relativity said in a January 25 press release that it had “successfully completed” financing agreements “totaling in excess of $100 million” that it could use after it exited bankruptcy. Kavanaugh said in the release: “With the total financing commitments now successfully in place, we remain focused on emerging from Chapter 11 and moving forward with our robust slate of films and our continued evolution as a 360 degree content engine.”
Reality: Relativity told the court on February 1 that it only had $20 million locked up, but that this would be sufficient. What’s more, it was confident that it could secure the additional $80 million — a $60 million term loan from Macquarie, and $20 million in vendor financing — in short order. Judge Wiles insisted on seeing the funding locked down before allowing Relativity to exit Chapter 11. The company instead has presented him with a different plan: $40 million from Midcap Financial Trust and $35 million from Kavanaugh’s financial partner, Joseph Nicholas.
TRIGGER STREET SHUFFLE: 1
Claim: Relativity said in a January 8 press release that it had “entered into an agreement to acquire Trigger Street Productions” owned by Kevin Spacey and Dana Brunetti. Subsequent press releases referred to the agreement in the past tense, saying that Relativity had “acquired Trigger Street Productions.”
Reality: Relativity lawyer Richard Wynne acknowledged in Court that, despite “some inaccurate reports,” it hadn’t acquired Trigger Street. It merely agreed to “some licensing.” In March, Relativity disclosed that it has a deal to license Trigger Street’s trademarks.
TRIGGER STREET SHUFFLE: 2
Claim: Relativity’s deal also provided for Spacey to become chairman of Relativity Studios, and Brunetti to become president, “effective mid-February.” Brunetti told the court on January 30 that he and Spacey would “jointly possess ‘greenlight’ authority.” He added that both had spent weeks in “numerous conversations and meetings” and “have become familiar with Relativity Studios’ business.” This was important for Relativity’s case. The addition of Spacey and Brunetti “cannot be emphasized enough as a positive future factor,” it told the court on January 31. Later, at a hearing, Wynne told Wiles that the signing of Spacey and Brunetti would be a “game changer.” Spacey reinforced that message in a video shown in court where he told the judge that “we are enormously excited with this new chapter,” adding that he hopes “we can go forward.”
Reality: Wiles was impressed — so much so that his February 8 ruling approving Relativity’s exit plan was contingent on “definitive documentation” of the Trigger Street deal. But Spacey said in a March 3 letter, filed in court 10 days later, that he has “a much deeper understanding of the specifics of the amount of work that will be needed to shepherd the company through this transition,” and concluded that “I neither have the time nor the wherewithal to take on” the work. Relativity does have a deal with Brunetti, taking effect after it exits bankruptcy. But now he shares the movie and TV greenlighting authority with Kavanaugh. No matter: Despite all of the hoopla about landing the star of House Of Cards, a financial expert for Relativity now tells the court that its post-bankruptcy plan “was not contingent on Mr. Spacey’s personal involvement in the business.”
Claim: Relativity said that Carat Global and VII Peaks Capital were putting money into films Immortals, Limitless and The Fighter.
Reality: Wait, VII Peaks Capital is a company that Relativity has reserved the right to sue, isn’t it? Yeah, look above.
Claim: In January, Relativity said in a press release that a fund run by Alphabet (formerly Google) Executive Chairman Eric Schmidt — called TomorrowVentures — “will make an investment in Relativity.” As part of the agreement, and “effective immediately,” the fund’s Managing Partner Court Coursey would also serve as Relativity’s Chief Investment & Strategy Officer, reporting to CEO Kavanaugh. The studio said he would “work to pursue and drive new business opportunities and partnerships across Relativity’s content businesses, including film, television, sports, digital and music.”
Reality: The announcement is so vague that it’s possible TomorrowVentures will make an investment at some point. But Coursey’s name is notably absent from Relativity’s exit plan and other key filings.
FOR WHAT IT’S WORTH
Claim: Kavanaugh told Relativity’s board that “professionals working for him personally had valued [Relativity] at $2 billion,” Kushner told the Bankruptcy Court after the studio fired his firm and it tried to collect for the services it had rendered.
Reality: When the Blackstone Group put the company up for auction, Kushner said “I am not aware of any bid received by [Relativity] on any of its assets that comes close to supporting that type of valuation.” The only offer received was from a group of Relativity’s creditors known as Stalking Horse Bidders. They agreed to forgive $125 million worth of debt in exchange for Relativity Television.
The company currently has The Disappointments Room, the horror film starring Kate Beckinsale, on the schedule for release next week (March 25). But it has not been promoted, and Deadline has been hearing for more than a month that this and another picture would be moved again. A spokesperson did not respond to multiple calls for comment.
Relativity first brought The Disappointments Room into the fold back in July 2014. The film was initially supposed to be released on September 25 but was bumped due to the bankruptcy filing.
The other film that may get bumped is Before I Wake, starring Kate Bosworth, Thomas Jane and Room‘s young co-star Jacob Tremblay. It’s on the schedule for April 8.