Relativity Media seemed to solve one problem, but introduced another, this morning in a hearing at U.S. Bankruptcy Court in New York which is weighing its effort to escape from Chapter 11 protection.
The solved problem involves the sale of Relativity Television to several hedge funds: The company says that the deal “has closed.”
There was just one objection remaining — and that dispute is close to resolution — a lawyer for the funds buying the property told the court. The creditors agreed to forgive a $125 million loan to Relativity in exchange for its most profitable asset.
Judge Michael Wiles approved the company’s deal to turn the TV unit over to the funds, known in the case as Stalking Horse Bidders. The group includes Colbeck Capital, Anchorage Capital, Falcon Investment Advisors, and Luxor Capital.
But a financing agreement to take care of another $125 million loan to the lenders has hit some turbulance. CEO Ryan Kavanaugh and his financing partners — VII Peaks Capital, investor Joseph Nicholas, and billionaire Ron Burkle’s OA3 — originally planned to pay $60 million in cash and offer a $30 million note in return for that loan.
Now it seems that the group wants to reduce the cash amount to $30 million and raise the borrowed amount to $60 million.
Under the original agreement, Kavanugh and his partners said that they would repay the $30 million note in two years, and along the way pay interest of 8.5% a year, rising to 10.5% if there’s a default.
Meanwhile Relativity’s senior lenders are renegotiating terms to sell their current debtor in posession (DIP) financing agreement to Manchester Securities, a subsidiary of Paul Singer’s Elliott Management. Relativity’s first major investor and second biggest creditor had agreed to pay $35 million for the $49.5 million obligation.
“We had this funding failure,” a lawyer for Manchester Securities told the court. “We’ve been working continuously through the night and this morning” on a new agreement. The current loan matures tomorrow, but Manchester said if its agreement to buy that loan closes today then it would wait until Thursday to resolve questions about the new one.
There’s no word yet about how much Relativity might need to keep operations going until it presents a reorganization plan, expected by early January. It offered to present a new DIP plan at a hearing this Thursday.
A lawyer for CEO Ryan Kavanaugh said that the new agreement will be “smaller and less restrictive on the company …It’s better for the estate and all parties.”
Relativity said in a statement that today’s developments are “an important milestone toward its emergence from chapter 11 with a significantly fortified balance sheet.”
Referring to the continuing loan negotiations, it says that while “the financial structure of the transaction has changed, we anticipate the Court to ratify this in the next 48 to 72 hours.”
The company adds that “in the near future” it will “file a plan of reorganization with the Court that will detail the company’s capital structure and its strategy for long-term growth with film, digital, music, sports and branded entertainment, continuing to build its asset base to offer brands unique access to a fully integrated 360 degree content engine.”
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