In 2008, by the age of 32, Ryan Kavanaugh had already made and lost a fortune and was on his way to earning his second, according to court documents. Now he might be on to his third act, at least as far as some investors in and creditors of Relativity Media and its related entities are concerned.
Launched by Kavanaugh in 2004, Relativity went bankrupt in August. As the Beverly Hills, California–based film and television finance company embarks on this latest adventure, the true net worth of its founder and the value of the business itself are the subject of speculation in Hollywood, on Wall Street and in the homes of hedge fund managers from Connecticut to Toronto who have invested in Relativity and Kavanaugh film deals.
Relativity filed for bankruptcy with an operating value of $560 million and $1.78 billion in liabilities, including $340 million worth of recourse debt (backed by collateral) on its books. As recently as April, Kavanaugh, now 40, was saying that the company had raised a fresh $250 million ahead of a long-promised initial public offering. Press reports at the time estimated his net worth at $1 billion.
Knight Global, Kavanaugh’s family office, invests mostly in private companies, including biotechnology firms and FreeHand, a California-based premium dog food maker, as well as real estate in Hawaii, Los Angeles and New York.
In April, Knight Global announced the acquisition of Bay Mutual Financial, a broker-dealer based in Santa Monica, California. BMF was co-founded by Martin (Bud) Pernoll, Kavanaugh’s friend and former supervisor at broker-dealer Dean Witter Reynolds, where Kavanaugh turned a summer internship into a full-time job; the majority of its $22 billion asset management business is offering advice and administration for corporate 401(k) accounts. In 2013 the Securities and Exchange Commission fined BMF for having insufficient cash on hand; the most recent accounts show it to be a break-even business.
Kavanaugh’s net worth — his first fortune was allegedly wiped out after the 2001 stock market crash — also includes his equity in Relativity. Bankruptcy filings show that his direct ownership stake is about 11 percent, but through joint ventures it might in fact be 30 percent or more. Others among the company’s 55 equity investors are billionaire and private equity manager Ron Burkle, who bought his position from New York–based hedge fund firm Elliott Associates, a longtime Relativity investor; Dune Capital Partners of Los Angeles, the investment management company of film financier Steven Mnuchin; and San Francisco–headquartered investment manager VII Peaks Capital. Relativity’s creditors include Manchester Securities Corp., a firm with links to Elliott; and senior-lender hedge fund firms Anchorage Capital Partners, Falcon Investment Advisors and Lyxor Capital.
Lyxor and Anchorage have provided the $49.5 million debtor-in-possession financing for Relativity and put up a $250 million so-called stalking horse bid to buy it out of Chapter 11. On August 25, Judge Michael Wiles of the U.S. Bankruptcy Court for the Southern District of New York approved an October 1 auction of the business. New York–based financial services firm Blackstone Group, which is handling the sale, said in court filings that it had received inquiries from 103 potential bidders, with 20 of those gaining access to information about Relativity’s assets. The deadline for bids is September 25. Kavanaugh’s future with Relativity will depend on who wins this war.
