Citigroup, Relativity Media sue each other over loan

By Gina Keating

LOS ANGELES, Nov 12 (Reuters) - Citigroup Global Markets Inc PQU.A and independent movie financing company Relativity Media LLC sued each other on Wednesday for breach of contract over a 1997 film funding deal involving Sony Pictures Entertainment.

The lawsuit, filed in U.S. District Court in New York, centers on Citigroup's attempts to raise the interest rate on a revolving credit facility for the $550 million, five-year film slate financing deal, called Beverly I.

Sony Pictures, a unit of Sony Corp (6758.T), was not a party to either lawsuit. Sony and Relativity plan to fund about 45 films under the deal, about 10 of which have been made.

In its suit, Relativity accuses Citigroup of breaching the original deal terms by trying to raise the interest rate on a $375 million revolver after it tried and failed to insure the loan, rather than syndicate it, to earn higher fees.

Relativity also contends the unilateral attempt to refinance is illegal and an attempt to extract lost costs.

"A contract must be enforced according to the parties expectations at the time of the agreement -- that is the first principal of contract law," said Relativity attorney Eric George. "Citigroup is trying to turn that on its head in order to extract the profits that had been made by Relativity."

Relativity claims it will incur annual damages of up to $50 million over the five-year term as a result of Citigroup's decision to refinance after it "ignore(d) the ready, willing and able third parties that wanted to acquire parts of the loan" in syndication deals.

In its lawsuit, Citigroup says it had the right to change certain terms of the original deal and that Relativity breached the contract by failing to comply with the new terms.

Citigroup said that "due to a number of factors, including the unprecedented turmoil in the financial and credit markets" it was unable to syndicate the loan.

The bank exercised its right to amend the deal on Oct. 30, but Relativity failed to execute the amendments and return them by Nov. 7, as directed, the Citigroup suit said.

Citigroup spokeswoman Danielle Romero-Apsilos said the company believes Relativity's suit "is without merit." (Editing by Andre Grenon)