Relativity Bidders Tell Bankruptcy Court That Delays Could Jeopardize A Sale

Relativity Media lenders who want to buy the company quickly — over the objections of others who want a longer auction process — say their timeline is the “only” one that will work, according to a filing today at the U.S. Bankruptcy Court.

The group, referred to as Stalking Horse Bidder, has offered about $250 million for Relativity. It also has endorsed a calendar that calls for bids to come in by September 25 ahead of an auction on October 1, and a sale agreement that could close on October 20.

“While there are circumstances where more time is unquestionably better, this is not such a circumstance,” the lenders say in a filing ahead of a court hearing on Tuesday. Relativity “must be sold as a going concern and the Debtors must be enabled to wind down their affairs in a way that preserves, rather than destroys, value. Only the time line and auction rules” it proposes “will achieve this goal.”

The group says it is “not trying to exploit a difficult situation.” It simply wants to keep Relativity going “all while also taking on additional risk.”

Stalking Horse fears that a longer process could add to the bankruptcy costs, which budgets about $17 million for nine weeks of professional services. “Each additional week that the chapter 11 cases remain pending, and the fee-intensive sale process continues, will increase these already substantial costs and, thereby, reduce recoveries to creditors,” the filing says.

A separate filing today shows that senior managing directors at FIT Consulting, which is handling Relativity’s restructuring, charge as much as $1,050 an hour. The company billed Relativity $39,674 yesterday. (According to a July 15 engagement letter, Relativity agreed to forward $750,000 to FIT which the firm said would be “applied to our professional fees, charges and disbursements for the Engagement” — with any left over cash to be returned to the studio.)

Stalking Horse also cites the costs “surrounding the Company’s future prospects, both internally and in Hollywood generally.”

Others including RKA Film Financing and Manchester Partners have said that the schedule provides too little time for anyone else to challenge details of the sale plan, or for the company to solicit higher offers.

But Stalking Horse says that those urging for more time failed to “put their money where their mouth is” by making additional investments. Without cash from the Stalking Horse group “there would be no sale process; without the sale process and the returns it promises, there could be no funding.” What’s more, courts “have not hesitated to approve comparably expedited sale processes in other cases where delay threatened material value degradation.”

The filing adds that Stalking Horse has already made several concessions to other creditors, including ones to extend the calendar by about two weeks and take on many of Relativity’s liabilities.

The group has agreed to waive the 1.5% break-up fee it wanted if its effort to buy Relativity falls through. Bankruptcy Court Judge Michael Wiles called such a payment “inappropriate.”

Stalking Horse also says that it tried to appease unsecured creditors by budgeting $4 million to “fund the cost of a post-sale liquidation plan” if it’s unable to keep Relativity going. That is “the best available evidence” that the group wants “a fair and equitable process that balances all relevant issues in order to fully protect the interests of the greatest number of stakeholders.”

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