June 16, 2014 2:38pm PT by Eriq Gardner
Movie-Investing Hedge Fund Declares Bankruptcy
Aramid Entertainment, a hedge fund based out of the Cayman Islands specializing in financing movies, has declared Chapter 11 bankruptcy.
The move comes after years of loan-collecting and litigation have left Aramid in a cash-strapped position. The movie financier reveals it has assets with a book value at more than $237 million, but it's the $11.4 million of liabilities — mostly in legal fees — that has caused Aramid to seek bankruptcy protection.
"One of the primary reasons for the Debtors’ current liquidity concerns is the inability to collect on loans made by AEF to certain entities controlled by David Bergstein and Ronald Tutor, and the numerous ancillary litigations arising from or relating to these loans," states the petition filed in New York on Friday.
According to the joint voluntary liquidators behind the bankruptcy, Aramid made 36 deals with Bergstein companies worth $62.7 million in loans, but by January 2010, Aramid had only been able to recover $20 million of that amount.
The petition then details an unsuccessful attempted restructuring of those Bergstein loans, fears that Bergstein's companies had begun to transfer some of their film rights, and then litigation aimed at Bergstein and Tutor. A substantial amount of those legal efforts included forcing Bergstein companies into involuntary bankruptcy, deemed "extraordinarily contentious" and which, ironically enough, precipitated Aramid's own bankruptcy.
The fight with Bergstein isn't the only big-ticket item on the Aramid docket.
Aramid also has a pending $44 million lawsuit against Relativity Media, Fortress Investment and others in connection with a slate film financing agreement with Sony Pictures Entertainment. That lawsuit, which until a few weeks ago was scheduled to go to trial in August, contends that Fortress used confidential information and undermined Aramid's investment position in the Beverly Blvd slate deal.
"If the current roster of litigation was to continue unabated, the Debtors would continue to expend a considerable portion of their resources on legal fees and litigation expenses, thereby jeopardizing the ability to maximize value," states the Aramid Chapter 11 petition. "Indeed, the accrued and payable costs to date significantly exceed the Debtors’ current cash available and, while based upon former management’s valuations, the Debtors’ assets are projected to be more than sufficient to pay all liquidated claims in full, with potentially substantial funds remaining for equity holders, the Debtors’ present cash shortfall risks material impairment of the Debtors’ rights and prospects for maximization of value, absent commencement of these cases."
The law firms owed the most by Aramid are Stroock & Stroock & Lavan; Jeffer Manges Butler & Mitchell; and Levene, Neale, Bender, Yoo & Brill. The bankruptcy petition is being handled by the law firm of Reed Smith.