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Relativity lenders to pay $125 million for its TV business

Ryan Kavanaugh, founder of Relativity Media.

Ryan Kavanaugh, founder of Relativity Media.

(Paul A. Hebert /Invision/Associated Press)
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Senior lenders to Relativity Media have agreed to pay $125 million for the troubled studio’s television business, according to court documents filed Saturday. The deal could leave the remaining Relativity assets -- including the film unit -- in the hands of its founder and chief executive Ryan Kavanaugh.

The group of lenders -- composed of Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors -- had previously submitted a starting bid of $250 million for all of Relativity. According to the Saturday filing, that was amended to an offer to purchase only the TV business.

The filing comes after an auction this week failed to produce bids for the whole company that would match the so-called stalking horse offer.

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“No single or aggregate bids were received for substantially all of the Debtors’ assets and thus no bids were deemed Qualified Bids,” the company’s lawyers wrote in a filing, adding that the remainder of the assets would “form the basis of a plan of reorganization.”

A sale hearing is scheduled for Monday in New York before Judge Michael Wiles.

Kavanaugh has spent the last several days in negotiations with the company’s senior lenders in New York to hammer out a potential deal that would leave him in charge of much of Relativity’s assets when the firm emerges from bankruptcy.

The studio chief has assembled a consortium of investors -- including supermarket magnate Ron Burkle -- to bid for the company’s movie business and other assets, according to a person familiar with the negotiations who was unauthorized to speak publicly. Kavanaugh had been widely expected to make a play for the Beverly Hills entity he founded in 2004.

The television business has been closely watched during the bankruptcy sale process. It has produced mainly reality shows such as “Catfish” and “The Great Food Truck Race.” Its scripted programming includes the new CBS show “Limitless,” based on the 2011 Bradley Cooper film.

It is still unclear whether Kavanaugh’s bid will ultimately succeed. But if it does, it would be a remarkable turn of events for an executive who wound up in U.S. Bankruptcy Court after a string of box-office bombs and his failure to pay down debt.

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A Relativity spokesman declined to comment beyond the court filing.

Entertainment industry analyst Harold Vogel on Friday said Kavanaugh will be considered lucky if he’s able to keep control of most of the assets.

“He’s fortunate he has people who will put up cash for him and give him another chance,” Vogel said. “There are people who have significant investments in this from a long time ago, and they don’t want to lose their entire investment.”

In the Kavanaugh group’s proposed scenario, he would remain chairman and chief executive of the new Relativity, which would include the movie side and minority stakes in the healthy Relativity Sports agency and the joint venture Relativity EuropaCorp Distribution.

Some analysts were skeptical of Kavanaugh’s ability to stay in charge, though he has defied industry expectations in the past. Relativity’s few hits include “Limitless” and “Act of Valor,” but the company was bogged down by flops including “Out of the Furnace” and “Movie 43.”

Relativity lacks a robust film library, which is a major weight on the value of its movies business. Filings listed the whole company’s liabilities at $1.18 billion at the end of last year, more than double the $560-million book value of its assets.

Analyst Vogel said if Kavanaugh remains CEO, he will be beholden to those players who help “bail” him out.

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“He’s not an independent boss, so to speak,” Vogel said. “As I see it, he works for the financial people who put up the money.”

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

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