Relativity Strikes $320 Million Deal With Catalyst Capital Group (Exclusive)

Ryan Kavanaugh - H 2015
AP Images/Invision

Ryan Kavanaugh - H 2015

Kavanaugh retains control of Relativity and will remain CEO and chairman of the board, a source familiar with the negotiations said.

In a move that many in Hollywood have been betting against, Relativity Media CEO Ryan Kavanaugh has pulled his studio back from the brink by landing a major cash infusion.

Toronto-based Catalyst Capital Group has acquired 100 percent of Relativity’s senior secured debt valued at about $150 million, a source familiar with the negotiations said. Furthermore, the private equity firm, which has showbiz investments including IMAX and Canwest (Canada's largest media company), has negotiated a deal to invest $170 million of equity into the studio, which will give Catalyst an undisclosed equity stake in the company and provide Relativity with the increased financial flexibility it was seeking for long-term growth.

Relativity declined comment. Catalyst couldn't be reached for comment.

Under the terms of the deal, which were finalized over the Fourth of July holiday weekend, Catalyst agreed to amend and extend the senior secured debt for a one-year term. Catalyst also will gain a seat on Relativity’s board of directors. Kavanaugh retains control of Relativity and will remain CEO and chairman of the board.

The move comes after weeks of speculation that Kavanaugh would lose his grip on the studio he founded 11 years ago if he couldn't make a debt payment said to be $120 million by the end of June.

The deep-pocketed Catalyst has $2.8 billion in capital commitments and a current portfolio that includes Sonar Entertainment, which develops, produces and distributes TV content globally and is one of the world’s leading producer of made-for-TV movies and miniseries.

The source said Relativity will use the time and money to restructure the studio, which is said to carry an overhead too big for its business model, which focuses on films that earn less than $100 million worldwide at the box office, so-called singles and doubles.

Though Relativity has removed one monkey from its back with the Catalyst deal, it still needs to reach an agreement with its subordinated debt holders, which include Colbeck Capital, with whom Kavanaugh has publicly battled in recent weeks. Kavanaugh led the charge to oust Colbeck partners Jason Colodne and Jason Beckman from Relativity’s board on May 27 following a negative story about Relativity in the New York Post (Relativity accused the pair of leaking the story).

Just three years ago, Colbeck played a key role in a $350 million debt financing deal with Relativity that was used to fund films and for business expansion. However, Relativity is close to ridding itself of the thorny Colbeck altogether. Colbeck currently holds $4 million of total subordinated debt. This week, Relativity will continue discussions with subordinated debt holders, including Colbeck, and expects those debt holders to extend repayment for a one-year term as well.