Photo: Getty Images / Alberto E. Rodriguez, relativity
Relativity Media is closing its deal for the $250 million it had set out to raise through boutique financial firm MESA Global, funding the company’s expansion plans and putting more coin in the coffers for future films.The deal has surprised many sceptics who thought Ryan Kavanaugh‘s mini-major lacked the assets to back up such a large influx of new capital. The transaction has all but closed, and multiple sources tell Variety that it will fund in the next day or two.
Company plans to expand through strategic investments, including reports that it will buy a majority stake in Germany-based distrib Senator Entertainment, in which it already has a minority holding. Though the new capital is not specifically earmarked for film production, Relativity has the flexibility to use some of it to finance its slate.
The deal also pairs Relativity with the New York-based capital-raising firm that helped advise Relativity investor Ron Burkle and the Weinstein Co. in their 2010 bid for Miramax. Relativity’s new funds come from around a half-dozen lenders, including Burkle, already a minority stakeholder, who anchored the MESA deal with around $75 million of junior capital through the Colbeck Capital fund (in which he is a major investor).
Variety first reported in April that MESA was working to raise $200 million of capital for the company, but sources say the deal ended up oversubscribed and closer to $250 million. Gotham-based firm, run by Mark Patricof out of New York and Marni Wieshofer in Los Angeles, has advised on several billion dollars in transactions, including the sale of lyrics database Metrolyrics and Tinopolis’ acquisition of Arthur Smith and Co., one of the largest producers of unscripted television in the U.S.
Mini-major will not use all of its new funds at once, drawing immediately on about $75 million of its $250 million in new coin, according to sources with knowledge of the company’s plans. But given Burkle’s recent purchase of a minority stake in Relativity, many financial observers wonder what the company could be using as collateral.
Variety first reported in April that MESA was working to raise $200 million of capital for the company, but sources say the deal ended up oversubscribed and closer to $250 million.
MESA’s Relativity transaction relies heavily on close to $60 million in receivables from “Mirror Mirror” and “Act of Valor,” according to multiple sources with knowledge of the deal. Relativity is also likely using its TV business, RelativityReal; division currently has dozens of projects in active production, according to a company spokesman, including MTV’s “Catfish,” Food Network’s “Restaurant Stakeout” and Bravo’s “Miss Advised.” RelativityReal also has overall deals with TV vets Jay Blumenfield and Tony Marsh, Wilmer Valderrama’s WV Enterprises, Ashley Tisdale’s Blondie Girl Prods. and exec producer Ellen Rakieten.
Relativity’s other assets include about 50 produced films as well as 20 pics from its acquisition of the Rogue Library. It also has a music and sports management business, the latter of which most famously counts Amar’e Stoudemire as a client.
But it’s unclear which assets are under obligation to Burkle, Relativity’s main backer. In January, the supermarket billionaire reportedly purchased a minority stake in the company, buying down previous backer Elliott Management. Terms of the deal — including collateralized assets — were not disclosed, leading many to wonder which assets would be free for Relativity’s most recent round of fundraising.
Deal broke into two parts: Senior debt (least risky) and mezzanine debt (more risky). The better the collateral, the lower the risk for lenders, and therefore the lower the interest rate.
On the surface, it appears that Kavanaugh borrowed the money at competitive interest rates: the senior debt — considered the safest as it’s repaid first — carried an interest rate of close to 6%. Current rates for similar deals come at about 5%.
The mezzanine portion — repaid after senior debt — came with a cost near 12%, which falls on the low side of comparable deals. Financial experts say that type of debt suggests the deal may not be fully collateralized, meaning some of the coin could be used for performance or production risk, i.e., future films.
Minimajor currently has 11 pics set for release next year and several in production, including “Out of the Furnace,” “Safe Haven,” “Paranoia” and “21 and Over.” Relativity also just partnered with Luc Besson’s EuropaCorp for a co-production and co-financing deal on two movies, the Robert De Niro-toplined actioner “Malavita” and “Three Days to Kill.”Commercial banks, which have tried to take on as little risk as possible since the financial crisis started, will typically only do senior loans in the entertainment space, meaning that if you can get a bank to give you a loan, do it — it’ll probably be cheaper than elsewhere. Since Relativity’s MESA deal used institutional investors, some financial experts suggest the senior portion of Relativity’s deal might have been too risky for commercial banks.
Relativity has been on the hunt for new money since last summer, when reports surfaced that Kavanaugh was in talks with JP Morgan Chase & Co. to buy out Elliott Management, the New York-based hedge fund that bought a minority share of Relativity in 2008. At the time, sources close to the negotiations said they expected the deal to close as early as September, but the potential deal was met with scepticism from the financial and entertainment communities, and by November, Variety first reported that those talks had stalled.
But Burkle’s January investment severed most of Relativity’s connection to Elliott.
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