Relativity Makes Emergency Motion Over $30 Million in Promised Investment Backing

Ryan Kavanaugh Cover Splash Without Text - H 2015

Relativity Media, currently in Chapter 11 bankruptcy, is celebrating the near closing of a $125 million deal to sell its television division, but there's some late drama concerning an investment firm that allegedly pledged $30 million to help Ryan Kavanaugh's company close the transaction.

Relativity's television assets are to be sold to Anchorage Capital Group, Falcon Investment Advisors and Luxor Capital Group. The new owners plan to keep chief Tom Forman on board and grow the business best known for hits like MTV's Catfish.

But one of the conditions of the deal was that Kavanaugh's group would owe these companies $30 million. The money was to come from VII Peaks, which Relativity presents in its new court papers as having "absolutely and unconditionally agreed to contribute" the money at the time of the auction for Relativity's assets.

On Tuesday, Relativity filed an emergency motion seeking to compel VII Peaks to reserve the money pending an adversary proceeding.

According to Relativity's newest motion, VII Peaks indicated on late Friday "it does not intend to satisfy its obligation unless certain preconditions are met."

An email from a VII Peaks representative is quoted. There, the firm wanted prioritized debt status, full credit for existing equity, maintaining a board seat, five domestic distribution slots a year for movies, and the ability to service the Relativity movie and music library.

This morning, the bankruptcy judge approved a sale order for Relativity's television assets, but upon hearing that the dispute with VII Peaks threatened to hamper today's closing of the deal, entered an ex parte order upon VII Peaks over the issue of whether the court should direct VII Peaks to pay $30 million into a registry or alternatively, restrain the investment firm from transferring funds from its bank accounts. A hearing is set for next week.

Meanwhile, a Relativity spokesperson is cheering the outcome of today's hearing with a statement about "an important milestone towards its emergence from chapter 11 with a significantly fortified balance sheet."

Assuming the deal goes ahead, with new financial backing, Kavanaugh will be steering Relativity divisions involving films, fashion, music and education. He will need to present a reorganization plan before Relativity emerges from Chapter 11.