Digital Domain's $30.2 million sale to Galloping Horse OK'd by court

By Jim Witters

Wilmington, Del., Sept. 24 - Digital Domain Media Group, Inc. received conditional approval Sept. 24 for the $30.2 million sale of most of the company's assets as a going concern to a joint venture between motion-picture companies from China and India.

During a hearing in the U.S. Bankruptcy Court for the District of Delaware, Judge Brendan L. Shannon said he would sign an order approving the sale if the debtors are able to work out an acceptable agreement with NBCUniversal Media, LLC and its subsidiary Universal City Studios LLC over two objections to the sale.

Shannon said that if the proposed order submitted by counsel meets his approval, he will sign it.

If the parties are unable to reach an agreement, a hearing may be scheduled for early Sept. 25.

Digital Domain faced a 5:30 p.m. ET Sept. 24 deadline to get the signed order on the court docket or face default on its debtor-in-possession financing facility.

No order had appeared on the docket by 6 p.m. ET.

The company also has a sale hearing scheduled in a British Columbia court at 2 p.m. ET on Sept. 25.

Sale details

The successful bid during the Sept. 21 auction came from Galloping Horse America, LLC, a Delaware corporation that agreed to form a joint venture with Reliance MediaWorks (USA) Inc.

Galloping Horse's parent is Beijing Galloping Horse Film Co. Ltd.

Reliance is a New Jersey corporation and wholly owned subsidiary of Reliance Capital Ltd., a public company listed on the Bombay Stock Exchange.

The $30.2 million winning bid includes a provision to assume all 12 contracts with OddLot Entertainment, LLC,

Summit Entertainment, LLC and Ender's Game Holdings, LLC. The contracts include Digital Domain's rights to share in proceeds from the movies Titanic and Ender's Game.

OddLot had pledged to object to and litigate any sale to a buyer who did not agree to take the contracts as a package.

The other assets included in the sale were the debtors' visual effects and virtual performance businesses.

Excluded from the sale were the company's patents and some operating assets.

Galloping Horse also agreed to assume $3 million in cure amounts and assume operating expenses for the business beginning Sept. 24.

The backup bid of $29.7 million was submitted by Anchorage Capital Group, LLC, an affiliate of Anchorage Illiquid Opportunities Master Offshore III, LP.

The Anchorage bid did not include the OddLot provision. Should the sale to Galloping Horse fail to close, an emergency hearing will be scheduled for the court to consider OddLot's objection to a sale to Anchorage.

Under the bid procedures, Digital Domain will pay Searchlight a $375,000 breakup fee and reimburse up to $375,000 of its sale-related expenses.

The lenders also will pay Searchlight a $750,000 breakup fee.

Under the terms of the DIP agreement, a sale must close by Sept. 28.

NBCUniversal objection

NBCUniversal objected to the sale to anyone other than the stalking horse Searchlight Capital, which had offered $15 million.

NBCUniversal was seeking assurance that any buyer of Digital Domain would possess the financial wherewithal to move forward with existing projects and see them to completion.

Specifically, NBCUniversal and Digital Domain are collaborating on two motion pictures scheduled for 2013 release - Oblivion is a high-profile major motion picture that stars Tom Cruise and has a publicly announced release date in April 2013; and 47 Ronin is also a high-profile major motion picture, starring Keanu Reeves, with a publicly announced release date in December 2013.

"Universal is concerned with the debtors' and the proposed purchaser's timely and satisfactory performance of all of their obligations. The digital imagery production services the debtors are providing for Universal in connection with the projects are highly specialized. Universal selected the debtors to provide such digital imagery production services in reliance on the debtors' unique skills, their technical competence and their sensitivity to protecting Universal's confidentiality and intellectual property rights. Universal's representatives have a history of working closely with the debtors' representatives and are doing so in connection with the pending projects," the objection states.

NBCUniversal also said its contracts with Digital Domain do not provide for the transfer of the obligations to a third party.

Digital Domain attorney Robert J. Feinstein said Galloping Horse placed $35 million in an escrow account and obtained a $20 million credit confirmation.

The joint venture holds an aggregate of $72 million in cash and credit available, he said.

After paying the $11 million DIP financing facility and placing the purchase price into a segregated account, the buyers will have about $37 million of working capital to continue to operate the business and maintain the current employment level of about 700 workers, Feinstein said.

Accelerated schedule

Judge Shannon told the parties that they achieved "a tremendous result," given the expedited timeline the case was on.

The DIP lenders and stalking horse bidder have insisted from the Sept. 11 start of the case that a sale close by Sept. 28.

Shannon acceded to the request, in large part, to save the jobs of 700 employees, he said. But his consternation over the speed of the case remained at the forefront, and he did not want the Digital Domain timeline to become a precedent.

"I do not anticipate that I would undertake this again, and I am confident from what I have heard from my colleagues that they would not," Shannon told the parties.

Digital Domain, a Port St. Lucie, Fla.-based media company, filed for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Sept. 11. The Chapter 11 case number is 12-12568.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.