Relativity Tells Court It Will Have To Liquidate TV Unit If No On Sale

EXCLUSIVE: Some 63 entities signed non-disclosure agreements enabling them to see Relativity Media’s books ahead of last week’s auction, and management held meetings with 10 of them. But despite an “aggressive marketing process to find the best and highest bidders” nobody made an offer for the entire company, just one came in for its crown jewel — Relativity Television — and “a few” offered to buy individual assets, the company says this morning in filings to the U.S. Bankruptcy Court.

The statements ahead of a hearing this afternoon aim to persuade Judge Michael Wiles to approve a $125 million agreement that would turn Relativity Television over to a group of creditors called Stalking Horse Bidders that includes Cortland Capital, Anchorage Capital, Falcon Investment Advisors, and Luxor Capital.

That potentially could leave the remaining assets in the hands of CEO Ryan Kavanaugh and backers including VII Peaks Capital, Joseph Nicholas, and OA3 who made separate deals to appease some of Relativity’s biggest creditors.

Wiles is all powerful here: He can reject the agreements if he decides that they don’t sufficiently protect Relativity’s creditors and other stakeholders.

But the company says this morning that if he nixes the TV deal, then Relativity TV “will have one remaining alternative: the shutdown of their operations and a likely resultant piecemeal liquidation of their assets.”

The judge also must consider Kavanaugh’s agreement to appease Relativity’s biggest creditors, led by Cortland which is owed $366 million.

In the complicated structure, the debt would be consolidated at a new entity called BidCo that includes Cortland and others in the Stalking Horse group. Kavanaugh and his partners would pay BidCo $60 million, and a $30 million senior secured debt note that matures in two years and carries an interest rate of 8.5% a year — with 2% added if there’s a default.

BidCo also would take control of Relativity TV and forgive $125 million its owed.

This morning’s filing lists 435 shows that would go to BidCo. It includes CBS’ new Limitless (Relativity would “retain the right to receive 10% of producer fees”), Haywire (Relativity receives 50% of producer fees) and Act Of Valor (Relativity receives 10% of producer fees). Others on the list include CNN Heroes, Catfish, Cooking With Salt-N-Pepa, and My Teen Is Pregnant.

Relativity’s second biggest creditor, Manchester Securities, owned about $137.1 million, would pay $35 million for Relativity’s $49.5 million debtor-in-posession financing agreement. It has “superpriority senior secured” status, meaning it would be first in line to be paid if the company runs into more trouble after emerging from Chapter 11 bankruptcy protection.

Unsecured creditors would have 45 days, and a budget of $275,000, to make sure that they’re satisfied with arrangements involving their claims or liens.