5 Big Questions for Ryan Kavanaugh's Troubled Relativity Studio

Illustration by: John Ueland

Has the company found its financial savior in Catalyst Capital Group? Even if it finds a new "pit bull" investor, the studio's road to recovery is bumpy.

This story first appeared in the July 24 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

It's become the guessing game of the summer: What will happen to Relativity and its CEO, Ryan Kavanaugh? The industry buzzed after reports emerged July 5 that Canadian investor Catalyst Capital Group has come to the rescue of the troubled studio. But many questions remain.

1. Is the deal real?

Relativity would not go on the record to confirm that Catalyst is assuming $150 million of Relativity's debt and adding $170 million more in equity, and Catalyst did not return calls. A source close to Relativity believes the deal had not closed at press time and may not close at all, at least for the money that has been reported. While it makes sense for Catalyst to assume Relativity's "senior" debt, the equity (or cash infusion) has puzzled observers. "At one point they were talking about Catalyst assuming the debt, but I never heard anything about equity," says a film finance source.

2. Will Kavanaugh remain in charge?

Even if a deal is done, Kavanaugh could be on shaky ground. Catalyst is highly aggressive, with a reputa­tion for buying into distressed companies, taking control and bringing in fresh blood to run them. Case in point: RHI Entertainment, producers of the Lonesome Dove miniseries, which Catalyst bought in 2012. Catalyst, whose leader Newton Glassman has been called "a pit bull negotiator" by Toronto's Globe and Mail, ousted founder Robert Halmi Sr. and hired veteran exec Stewart Till to run the rebranded Sonar Entertainment. Ironically, Catalyst's Relativity deal could involve Relativity purchasing RHI.

3. Will Relativity have money to make movies?

Writers and producers contacted by THR say there has been no positive movement on their projects at the studio. Relativity has delayed the release of at least two films, Masterminds and Jane Got a Gun. An equity infusion could change that, giving it enough cash to fund indie-scale movies (much of their budgets come from foreign presales). But filmmakers might not be in a hurry to sign deals when the company's future is unclear.

4. Why would Catalyst invest in Relativity?

Despite a slew of disappointing movies (including recent flops The November Man and Brick Mansions), the studio still has several appealing assets, including strong "output" deals (or distribution) in different territories throughout the world; a lucrative pact with Netflix; a sports agency; and a reality TV division. "If you can somehow clean up a lot of this debt and be left with a rump that does not cost you that much," says one film finance executive, "maybe it's worth it."

5. Is an IPO in the works?

Investors are looking favorably on independent studios like Lionsgate. But it's unlikely they'll be as kind to Relativity given its troubled history. Kavanaugh has said that he wants to head toward an IPO, without elaborating on when. "Normally IPOs require companies that have shown increasing growth and value over years," says a film finance lawyer. "If a company goes down in value like this, that's a bad thing. Investors don't like uncertainty."

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