Relativity Media Sets $115 Million in New Debt (Exclusive)
OneWest Bank and Barclays take the lead on plans to raise a total of $300 million this year. Last year, Relativity had earnings of $140 million on $650 million in revenue.
Relativity Media has closed a $115 million, five-year revolving line of credit that it expects to expand to $300 million within one year, according to CEO Ryan Kavanaugh.
That money includes $50 million being put up by OneWest Bank, $50 million from Barclays Bank and $15 million from City National Bank. OneWest and Barclays are the co-lead arrangers and syndication agents that will raise the additional debt.
“The real reason to do this now is there is so much debt available in the market and it’s so cheap,” says Kavanaugh.
Some of the money might be used to pay down a portion of about $100 million in debt that was part of $350 million that Relativity set in place nearly a year ago, around the time that Ron Burkle became a major investor, along with Colbeck Capital. The other $250 million is mezzanine debt put up by Kavanaugh, Burkle and other investors, all equity holders in the company.
Before Burkle came in and bought out much of the equity previously held by Elliott Associates, a New York hedge fund that still holds a minority position in Relativity, it was unclear if the company even had a future. Since then, Relativity has been stabilized and, according to Kavanaugh, last year had earnings of $140 million on $650 million in revenue.
Kavanaugh expects the company’s theatrical box office to rise to about $1 billion this year, which with revenue from other divisions such as music, sports, reality TV and licensing should push up revenue even more.
“Companies go through highs and lows in this business,” Kavanaugh tells The Hollywood Reporter. "The Burkle and Colbeck transactions were a permanent restructuring for the company and set us on a new foundation. We’ve been building on that foundation since. It’s certainly placed us in a position of positive momentum and definitely growth, rather than where we came from before, which was a lot more defensive.”
Kavanaugh says OneWest and Barclays already have four or five other banks doing diligence on joining the debt deal. He said that the banks do face a challenge in understanding that Relativity operates on a somewhat different business model than most other studios.
Barclays, says Kavanaugh, did six months of intensive due diligence, which included meeting with key people in the company, before committing to the debt. Barclays also has come on now as Relativity’s investment bank and adviser on everything from finance to possible acquisitions.
Kavanaugh is eyeing the acquisition of movie, TV and music libraries as a way to use the additional cash. “We’re looking for sustainable, long-term, low-volatility, cash-generating assets,” he says. “Obviously, movies are unpredictable. Some do well, some don’t. More and more we look to how we can create this predictable, sustainable model.
“Part of why Barclays spent so much time doing due diligence is that they recognized we are doing things differently and they wanted to understand the long-term viability of the model,” he adds. “Our business model looks for singles and doubles and once in a while a triple, and looks to mitigate risk, as opposed to looking for the next major franchise.”
Kavanaugh says that in the past year, Movie 43 didn’t perform as hoped but was still a single and “we didn’t lose money on it,” he explains. 21 and Over was a nice single, he says, and Safe Haven was "a nice triple for us.”
“We don’t ever look at our movie slate and say, 'Oh, there are one or two that will do over $100 million,” adds Kavanaugh. “That’s what traditional studios do. It’s not our model. We want to make a little money on most, if not all, our movies.”
Other revenue comes from the growing reality TV division, which includes the breakout MTV show Catfish, based on a documentary feature Relativity distributed.
On Monday, Relativity also launched Coin, a YouTube digital channel all about being a business entrepreneur. YouTube pays Relativity to produce the programming, which can range from the serious to the funny, and YouTube owns the content in partnership with Relativity.
Relativity also has a sports division that represents a number of high-profile athletes including New York Knicks star Amare Stoudemire, football’s Larry Fitzgerald and Detroit Tigers star Miguel Cabrera, for whom it recently negotiated a record eight-year, $153 million contract