Relativity Media LLC, the troubled maker of films including “The Fighter” and “Act of Valor,” will gain court permission to sell itself in an auction to begin with a $250 million bid by some of its pre-bankruptcy lenders.
U.S. Bankruptcy Judge Michael Wiles in New York said Tuesday he was preparing to approve the company’s sale request with some alterations. A court fight had pitted Ryan Kavanaugh’s film studio and senior debt holders against a more junior debt holder that had objected.
Among assets the company seeks to sell are 27 projects in development --including sequels such as “Immortals 2” and “Fighter 2,” as well as new projects “The Crow” and “Serbia’s Super Thieves,” according to court papers.
“Is everybody all satisfied that this works now?” Wiles asked after the close of almost six hours of debate on how the auction would work. “Ok, then I’m not going to try and figure it out.”
Anchorage Capital Group LLC and Luxor Capital Group LP, both pre-existing lenders to Relativity through a senior term loan, are backing the $250 million offer. They are acting as a “stalking horse” bidder that values the company’s assets.
The two New York-based hedge funds are part of a group of lenders that include Boston-based Falcon Strategic Partners, according to court records. Anchorage and Luxor had each committed to fund half of a $45 million operating loan to Relativity, with Cortland Capital Market Services LLC acting as an agent.
Tuesday, lawyers told Wiles the loan will be $49.5 million. The judge approved the financing, having already extended interim approval to use $9.5 million of the funds.
Richard Wynne, a lawyer for Relativity, said there had been “an intense series of negotiations” that resulted in changes to the financing and auction procedures.
Creditor Manchester Securities, linked to Paul Singer’s Elliott Management, had objected, saying it had a right to prohibit the company from selling its assets. Manchester said it didn’t have sufficient information to evaluate the proposed sale.
Relativity responded that Manchester “cannot realistically complain that it, among all other creditors and parties in interest, has insufficient information with which to make informed decisions” because it purchased its library assets in 2012, is a large equity and debt holder and has had a relationship with Relativity dating to 2007.
Manchester Securities was owned by Elliott Management as recently as 2005 according to a filings with the Securities and Exchange Commission. Stephen Spruiell, a spokesman for Elliott, declined to comment on the funds’ current relationship.
The bidding procedures were approved after negotiations with the creditors committee and other objecting parties. The timeline for the marketing of assets had been extended earlier. The auction is set to be held Oct. 1, with bids due by Sept. 25.
Several Hollywood business partners had also objected to the way the sale was proposed. These include IATM LLC, which has license rights to “Act of Valor,” a 2012 film about Navy Seals. IATM said documents had to be amended because Relativity doesn’t have an interest in follow-on project “Act of Valor: SWAT” because the project had been canceled. The issue will be resolved later, lawyers said at Tuesday’s hearing. CIT Bank NA, an agent and lender for production loans on “Masterminds” and “The Disappointments Room” said it wanted to reserve its rights to raise issues about the fate of the films if they weren’t sold.
Objections resolved included those from Netflix Inc., which had raised concerns about whether Relativity could honor a license agreement that calls for it to provide a certain number of films per year for Internet transmission. Also resolved was an objection by Viacom Inc., which said it had difficulty identifying what Relativity assets to be sold would affect its contracts.
Also at issue had been whether the company could immediately pay performers, writers, and producers $28 million in bonuses and license fees related to ongoing use of their work as the company tries to retain relationships with Hollywood talent.
The issue was resolved prior to the hearing with the payments being approved.
Macquarie Investments US had also objected to the proposed sale method, saying the lender group was “attempting to run away with valuable assets of the debtors’ estates.”
Macquarie has a stake in distribution rights including agreements between Relativity and Netflix, Twentieth Century Fox Home Entertainment LLC and Apple Inc. for films including “The Lazarus Effect” and “The Woman in Black 2: Angel of Death.”
C.J. Brown, a senior managing director at the Blackstone Group LP, which has been advising Relativity on its sale, said the Cortland lenders gave the best possible offer for a loan and stalking-horse bid.
Since the company filed for bankruptcy, Blackstone has had contact with 103 potential bidders, and 20 of them have access to information about the company’s assets, according to a court filing.
The case is Relativity Fashion LLC, 15-11989, U.S. Bankruptcy Court, Southern District of New York (Manhattan).