Chapter 11 Bnkruptcy

Relativity’s Hope to Exit Chapter 11 Dashed

Relativity, the studio that had recently entered Chapter 11 protection bankruptcy, had hoped to make an exit from said bankruptcy recently. U.S. Bankruptcy Court Judge Michael Wiles, however, put those hopes to rest for a while longer, noting several key points that would impact the studio's ability to exit Chapter 11. A report from Variety ran down just what was missing, and just what should be in place to convince Wiles effectively to remove the protections in place.


Part of an exit from Chapter 11 bankruptcy requires the filing of a plan by which creditors are paid back, and in Relativity's case, the plan was a little too long on ambition and weak on details for Wiles. More specifically, Wiles noted problems with Relativity's level of equity financing, as well as some major issues between the studio and its creditors. Several vendor objections also factored in, and a distribution agreement with Netflix that also featured some rough points weighed on Wiles' decision.


Wiles, not really disparaging Relativity's plan, called its efforts “Herculean”, though noted that there “...are a lot of pieces that are not quite finished.” Wiles did note specifics that would have helped here, particularly a $20 million vendor financing package, a term loan from Macquarie Capital for $60 million, and firm commitment from Dana Brunetti and Kevin Spacey to take over the studio outright. That last might prove particularly troublesome, as Relativity's attorney's noted that the agreement from Brunetti and Spacey was contingent on Relativity coming out of Chapter 11.


An additional set of issues emerged with Relativity's funding plans, starting with claims that $100 million in new financing had been raised were dashed by word at the hearing, which found only $20 million of that was on hand. Testimony also noted that 50 investing parties were prepared to bring in amounts ranging from $5 million to $100 million, but again, this depended on a release from Chapter 11.


Relativity's issues almost seemed to be a Catch-22; funding was required to emerge from Chapter 11, but emergence from Chapter 11 was what was standing in the way of new funding. The Brunetti / Spacey deal and fresh funding alike relied on this point, and would have helped the process considerably, but the funding and deal alike couldn't be brought into play without the removal of the Chapter 11 protections. It's enough to make one wonder just which will break first: the hesitant investors who won't put resources into play without an end of the bankruptcy, or the organization itself which can no longer get fresh funding because of the bankruptcy.


While bankruptcy will never be this complex for most people, it illustrates that most anyone—from individuals to major Hollywood studios—can file for bankruptcy's protections. What's required as part of that repayment plan—a point which will also be required of those who file Chapter 13 bankruptcy—will vary from person to person to organization, but that move to repay creditors will commonly be an important part of any bankruptcy filing.