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Massive debt forces Relativity Media into Chapter 11 bankruptcy

In many instances, Salem companies that seek bankruptcy protection do so as a way to preserve their ability to stay in business. After all, creditors might be repaid faster if a company were able to regain financial solvency through a sale. A Chapter 11 bankruptcy allows this to happen without indebted companies having to worry about the threat of litigation.

Such is the path currently being taken by the Hollywood movie studio Relativity Media. Despite the successes of many Relativity-released films in recent years, studio executives list between $500 million to $1 billion in debts owed to as many as 5,000 creditors, compared to only an estimated $100-$500 million in assets. As recently as this year, Relativity had sought a new lending partner to both purchase its debt and buy into the company. A deal appeared to be in place in July with a capital firm in Toronto. However, a group of already existing debt-holders short-circuited the deal by buying the firm’s proposed debt stake.

All of this has led the studio to ultimately file for Chapter 11 bankruptcy. However, despite this setback, the studio’s founder expressed his confidence in its ability to rebound and return to its place as one of the biggest new names in the entertainment industry. Indeed, the studio will continue to operate even as it goes up for auction in October.

While certainly not the preferable course to debt relief, the protection afforded by a Chapter 11 bankruptcy can ensure a company’s ability to repay creditors by maintaining is viability. Executives from companies needing such protection may first want to speak with a bankruptcy attorney to determine if this is viable option for them.

Source: The Hollywood Reporter, “Relativity Files for Chapter 11 Bankruptcy,” Eriq Gardner and Tatiana Siegel, July 30, 2015

 

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