Relativity Judge Not Ready to Approve Bankruptcy Exit

Ryan Kavanaugh Cover Splash Without Text - H 2015

Six months after one of the biggest bankruptcies in Hollywood history was declared, Ryan Kavanaugh and his team at Relativity were back in court on Tuesday in an attempt to get approval for a plan of reorganization for the studio. But it appears as though they will have to wait longer, with the judge not even committing to having this done by Feb. 20.

The bankruptcy has seen Relativity moving heaven and earth to settle with Wall Street financiers and other creditors, leading to the reduction of some $630 million in debt, but some of the paperwork on new money to fund the studio going forward is still being finalized and Netflix is being dragged across the finish line.The streaming giant has questioned the feasibility of the plan and whether a reorganized film studio to be headed by Kevin Spacey and Dana Brunetti can really deliver movies being promised. 

At the hearing, Judge Michael Wiles told Relativity that he wasn't quite ready to approve confirmation of the reorganization plan. He told the studio's lawyers that they should make arrangements to extend the term of debtor financing, which was set to expire on Tuesday with expectations of approval.

While applauding the parties for Herculean efforts on making progress, the judge said he's "concerned" about the feasibility of the plan, pointing to expectations of new money in the form of a bank loan and vender financing to fund operations and remarking the "margin is thin." Wiles also admitted being "nervous about approving projections not necessarily explained to me."

He added, "I'm not willing to confirm a plan based on possibility of something being done. I need it to be done."

Regarding Spacey and Brunetti, the judge said, "I want the deals with Spacey and Brunetti to be nailed down."

Relativity's lawyer Richard Wynne revealed on Tuesday that Spacey and Brunetti made it a condition they wouldn't sign their deals until Relativity exits from bankruptcy. "That's Hollywood," he said.

The development came with the judge's acknowledgement of disappointment by Kavanaugh's attorney, who pleaded for an opportunity to go back over the details of the plan.

At the hearing, Wiles asked Joseph Nicholas, a hedge-fund magnate who has recently poured significant money into Relativity, to answer a couple of concerns. The judge said he was troubled that the only equity raised was attributable to him, wondering whether there were other interested investors being turned away. "I can't tell if this is a situation where people are skeptical about the prospects [for Relativity]," he said.

Nicholas answered that there was at least one investor ready to pump $50 million into Relativity, but that this investor didn't want to do so while the company was in bankruptcy. "This will be our first call," said Nicholas. "There is definitely a ton of interest."

While Relativity has made one deal after another with an eye towards a bankruptcy exit — the latest settlement is with CIT Bank, which extended tens of millions of dollars in production loans and voted against the plan — the studio still hasn't dotted all the i's and crossed the t's on a P&A ultimates facility and has other last-minute amendments to its plan. This has caught Judge Wiles' attention, along with the objection from Netflix.