Rhythm & Hues, Facing Cash Crunch, Seeks Mid-March Sale

Rhythm & Hues says in court filings that it has identified several potential buyers

Rhythm & Hues Studios said it needs to be sold by mid-March or it will run out of money and is asking a judge to approve speeding up its auction process, the company said in court filings this week.

The Oscar-winning visual-effects studio behind "Life of Pi" and "Babe" filed for Chapter 11 bankruptcy protection last month, but managed to secure roughly $20 million in bridge loans from Legendary Pictures, Universal Studios and 20th Century Fox Studios so it could continue working on a handful of film projects.

But the funding the company received is finite, and its work for Universal on the big-budget adventure "R.I.P.D." is slated to end Friday, Rhythm & Hues said in U.S. bankruptcy court filings.

The company added that it will have difficulty finding new projects to work on while it is having financial difficulties, which could necessitate more layoffs. Rhythm & Hues had roughly 700 employees working in California before it went bankrupt, but according to filings it has laid off roughly 250 people.

"The Debtor believes that it will be very challenging to get new or additional work from clients while it is still in chapter 11, meaning that the Debtor will have no new revenue to offset its current overhead until the Debtor consummates a sale transaction," the filing reads. "A sale is therefore needed to create stability, and allow the Debtor to retain both its creative and production team and the business of its largest customers."

Also read: Rhythm & Hues Bankruptcy Status Update Shows No Decision on Warner Bros. Films

Rhythm & Hues has retained the financial advisory firm Houlihan Lokey to help it find a buyer, and in its filings, the company said that 80 entities have been contacted about a possible sale.

"There are some things in the works right now that are encouraging," Lee Berger, Rhythm & Hues' feature film division chief, said in a statement to TheWrap. "Nothing is solid, and at this time we don't have many details to share."

Sixteen of those entities are interested enough to have signed non-disclosure agreements and begun due-diligence on the company. Rhythm & Hues expects to identify a stalking-horse bidder by the end of the week, an individual with knowledge of the sale told TheWrap.

A stalking-horse bidder would be selected by Rhythm & Hues from a pool of bidders, so the company could ensure that its assets are not low-balled at auction. The stalking-horse bid would  represent the lowest acceptable offer; other suitors will be required to submit qualified bids by March 12.

Rhythm & Hues said in filings that a successful bid would have to include enough cash to ensure it is no longer insolvent and the assumption of loan payments to the studios that have helped keep its operations running while it is in Chapter 11. 

If an auction moves forward, Rhythm & Hues is proposing it take place on March 18 in the Los Angeles offices of its attorneys, Greenberg, Glusker, Fields, Claman & Machtinger. If the stalking-horse bidder is unsuccessful, it can receive a breakup fee of no more than $150,000, the filing states.

Pamela Chelin contributed to this report.