Major Layoffs to Hit Ryan Kavanaugh's Relativity This Week as Bankruptcy Looms

Ryan Kavanaugh - H 2015
AP Images/Invision

Ryan Kavanaugh - H 2015

Some 350 people currently work at Beverly Hills-based Relativity.

Ryan Kavanaugh's Relativity Media is set to lay off as many as 50 employees this week (and possibly more) as the financially-embattled studio could file for bankruptcy as early as Wednesday, sources close to the company tell The Hollywood Reporter.

The 11-year-old studio, which declined to comment, owes hundreds of millions in debt and is scrambling to come up with the money before Wednesday. Kavanaugh has been unable to meet a number of payment deadlines, including another key deadline Monday, according to sources. In recent days, lenders have been working to strike an agreement whereby Kavanaugh exits the company once bankruptcy papers are filed, they say.

Dozens of Relativity employees are expected to receive pink slips, although one source says Relativity president Tucker Tooley has been asked by the lenders to stay and manage the company. Likewise, president of film production Robbie Brenner is expected to stay in her position, according to the source.

Some 350 people currently work at Beverly Hills-based Relativity.

On the film side, there will be layoffs in development, production and physical production. Other units of the company, including TV, digital and branding, are likely to take major hits. The company has long been criticized for its large overhead given that its business model is based on films expected to earn less than $100 million worldwide.

Red, the joint distribution venture between Relativity and Luc Besson's EuropaCorp, isn't likely to be impacted.

Adding insult to injury, insiders say those being laid off won't receive any severance.

Sources close to the both Relativity and the lenders say the clock has not yet run out on Kavanaugh to come up with the money to service the debt. Former film financier Michael Pierce, who backed the William H. Macy-Alec Baldwin drama The Cooler, says he is in talks with Relativity to invest $50 million in equity into the company if its debt issues are resolved before a bankruptcy filing.

"It's an asset that can be plugged into a lot of businesses I'm currently invested in," says Pierce, a tech industry venture capitalist who heads up Digi Ventures. "I'm very interested in Relativity's reality TV assets and their Netflix output deal. They would marry well with my overall entertainment investing strategy."

Earlier this month, Relativity reached an agreement with the Toronto-based Catalyst Capital to purchase Relativity's senior debt of $130 million, but Relativity's subordinated debtholders, led by Anchorage Capital, exercised an option to buy out Catalyst's stake, putting Kavanaugh back at square one. Kavanaugh subsequently accused Relativity lender Colbeck Capital of orchestrating a predatory buyout scheme.

There are several scenarios for what happens if Relativity goes into bankruptcy. Lenders could get their money back by selling the company, or they could end up owning Relativity and appointing new leadership. And Kavanaugh could still buy the company back if he finds a new equity partner. Pierce says he is in parallel talks to invest with Kavanaugh under such a scenario. Relativity declined comment on any talks with Pierce.

Relativity has a number of movies set for release, but their fates are unclear. Last week, Sony sent a letter to Relativity stating its intention to terminate Relativity's deal for U.S. rights to The Bronze, according to sources. Relativity struck the $3 million pact with Sony Pictures Worldwide Acquisitions after the comedy — written by and starring The Big Bang Theory actress Melissa Rauch — debuted at the Sundance Film Festival in January.

Letters of termination are sent when a distributor has failed to satisfy, or "cure," various provisions of a contract. (A notice of termination would follow a cure letter). Sony and Relativity declined to comment regarding The Bronze, which was produced by the Duplass brothers.

Another high-profile project in question is Autobahn, the action film now titled Collide that stars Felicity Jones, Nicholas Hoult, Anthony Hopkins and Ben Kingsley, sources also said.

Numerous sources say Relativity titles are being shopped around town by worried producers, although the company is intent on holding onto Masterminds, a comedy starring Zach Galifianakis, Owen Wilson, Kristen Wiig and Jason Sudeikis, and the Halle Berry action film Kidnap. In recent weeks, the release of both films has been pushed back, with Masterminds moving from August to October, and Kidnap to February.

The fate of other upcoming releases is unclear, including the horror film Before I Wake, directed by Mike Flanagan and set for release Sept. 25, and The Disappointments Room, a psychological thriller directed by D.J. Caruso that is likewise scheduled to hit theaters Sept. 25. (Generally, no company releases two films on the same date.)

Insiders say if lenders restructure the company and provide a cash infusion, many of the films could still be released by Relativity.