Digital Domain Media in bankruptcy, gets $15 million bid for assets

By Caroline Salls

Pittsburgh, Sept. 11 - Digital Domain Media Group, Inc. filed Chapter 11 bankruptcy on Tuesday in the U.S. Bankruptcy Court for the District of Delaware to ensure the long-term future of its core business and facilitate a sale of its assets, according to a company news release.

The company said the bankruptcy filing is part of its previously announced strategic realignment. Digital Domain is also seeking ancillary relief in Canada under the Companies' Creditors Arrangement Act in the Supreme Court of British Columbia.

Digital Domain said that it has entered into an agreement under which Searchlight Capital Partners LP would acquire Digital Domain Productions and its operating subsidiaries in the United States and Canada, including Mothership Media, for $15 million.

The sale is subject to the receipt of higher and better offers and court approval.

If Searchlight is not the high bidder for the assets, Digital Domain will pay it a $375,000 break-up fee and reimburse up to $375,000 of its sale-related expenses.

"The capital commitment of Searchlight will enable us to continue to bring our expertise to feature films, advertising, games and other media experiences, with a focus on what we do best - creating digital productions," Digital Domain Productions and Mothership chief executive officer Ed Ulbrich said in the release.

"We remain on track to deliver all of our clients' productions on schedule, on budget and at the highest degree of quality that they expect from Digital Domain."

During the bankruptcy process, the company said that Digital Domain Productions and Mothership intend to continue to operate without interruption in the ordinary course of business.

"Upon Searchlight's consummation of the transaction, we have committed and will continue to commit our strong financial resources and expertise to ensure that this business always remains healthy and vibrant," Searchlight co-founder Eric L. Zinterhofer said in the release.

Strategic realignment

The company said it has initiated a strategic realignment that will allow it to focus on its core business Digital Domain Productions, Inc.

As part of this process, Digital Domain Media began the cessation of its Port St. Lucie, Fla., operations by reducing virtually its entire Port St. Lucie workforce by 300 employees and retaining 20 employees.

In addition, John C. Textor resigned from his positions as chief executive officer and chairman of the board and all other positions as officer and director of Digital Domain's subsidiaries, effective Sept. 6.

Digital Domain said FTI Consulting senior managing director Michael Katzenstein is serving as its chief restructuring officer.

"DDMG has been working diligently to reduce costs for the benefit of stakeholders and has already implemented various strategic realignment initiatives that we believe will have a positive impact on the robust and flourishing going concerns," Katzenstein said in the release.

"In tandem with senior noteholders and other parties, it was determined that the use of these proceedings provides the most viable opportunity for creditor recovery while also ensuring identification of buyers who recognize the true value of these assets."

DIP financing

In conjunction with the bankruptcy filing, senior noteholders led by Hudson Bay Master Fund Ltd. have agreed to provide Digital Domain Media Group with up to $20.08 million in debtor-in-possession financing.

The DIP financing will be used to pay normal operating expenses, including employee wages and benefits, payments to vendors and suppliers and other obligations.

Interest will be 12%, paid in kind.

The DIP loan will mature on the earliest of Dec. 31, the acceleration of the DIP loans and a motion for dismissal or conversion of the Chapter 11 case.

The company is seeking interim access to $11.79 million of the DIP financing.

A hearing on the bid procedures and interim DIP financing is scheduled for Sept. 12.

Debt details

As of June 30, Digital Domain had $205.02 million of total assets and roughly $214.86 million of total debt, according to court documents.

The company's largest unsecured creditors are Carl Stork with a $5.04 million litigation settlement claim, Reliance Mediaworks Ltd. of Mumbai with a $4.6 million trade claim and Legendary Pictures of Burbank, Calif., with a $3.09 million unsecured note claim.

John C. Textor, PBC MGPEF DDH LLC, PBC Digital Holdings LLC and PBC Digital Holdings II LLC all held 5% or more of the company's voting securities as of Sept. 5.

The company is represented by Pachulski Stang Ziehl & Jones LLP.

Digital Domain is a Port St. Lucie, Fla.-based media company. The Chapter 11 case number is 12-12568.

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