Rhythm & Hues Sells to Prana in Turbulent Auction

Prana, an Indian-American visual effects company, has a deal in principle to buy the bankrupt visual effects company Rhythm & Hues, winning a turbulent, two-day auction

An affiliate of Prana Studios has a deal in principle to buy the bankrupt visual-effects company Rhythm & Hues, winning a turbulent, two-day auction, an attorney for Prana told TheWrap.

Prana is a computer-animation and visual-effects company based in the United States with a wholly owned subsidiary in Mumbai, India, where much of its animation is produced. The company has worked on animation in "Hoodwinked" and done visual effects for the 2010 "Tron Legacy."

Earlier in the day, Rhythm & Hues asked for and received an extension to allow a previously disqualified bidder to re-enter the auction.

Rhythm & Hues received final offers from Prime Focus and a Chinese company. However, an attorney for the company told a bankruptcy court judge that new information came to light that indicated that the bidder had been shut out of the auction unnecessarily.

The Chinese company was identified in the Los Angeles Times as China Lion, but the company denied it has been involved in the bidding. The bid came not from China Lion, according to an individual with knowledge of the company, but from Brave Vision. Jiang Yanming, the president of China Lion, is an investor in Brave.

The sale caps what has been a turbulent few months for Rhythm & Hues and the visual-effects industry as a whole. Its failure — the latest in a string of bankruptcies that have brought California's visual-effects business to the breaking point — set off shockwaves throughout the embattled industry.

Also read: Rhythm & Hues Asks Court to Let Auction Continue

When Rhythm & Hues filed for bankruptcy protection in February, it reported that it had $27.5 million in assets and roughly $33.8 million in liabilities.

As the company has been mired in Chapter 11, three studios have helped it meet its payroll obligations and continue working on a number of projects. All told, Legendary Pictures, Universal Studios and 20th Century Fox Studios, the three in question, have extended approximately $20 million in loans during the process.

Visual-effects workers latched on to the company's failure in an effort to make a larger point that the business was being undermined domestically by lucrative foreign subsidies in places like the United Kingdom and Canada, as well as a cutthroat fixed-bid process that squeezed profit margins.

Variety first reported the pending deal.

Pamela Chelin contributed to this report