Rhythm & Hues Taps Financial Advisory Firm to Help With Sale

Bankrupt Rhythm & Hues is asking Houlihan Lokey to help it identify a stalking horse buyer

Rhythm & Hues Studios has engaged  financial advisory firm Houlihan Lokey to help it find a buyer.

The Oscar-winning special-effects company filed for Chapter 11 bankruptcy protection last week after a proposed sale to Prime Focus collapsed at the eleventh hour. The Indian-based effects company was unable to line up funding to complete the deal, an individual with knowledge of the situation told TheWrap, although it remains interested in possibly acquiring the company.

In announcing the Houlihan Lokey appointment, Rhythm & Hues said it is moving quickly to complete a sale of its assets and has identified several parties that are interested in acquiring it.  Rhythm & Hues said it wants to find a stalking-horse bidder, which would allow it to avoid an auction of its assets, potentially maximizing the price the company receives.

Rhythm & Hues is currently nominated for two visual-effects Oscars for its work on "Life of Pi" and "Snow White & The Huntsman," and is considered a leader in its field. However, the visual-effects business is a notoriously low-margin one. In California, where Rhythm & Hues is headquartered, visual-effects companies have found themselves at a disadvantage to other foreign companies that can offer more generous tax subsidies for studios and cheaper labor.

Rhythm & Hues reports in its Chapter 11 filings that it has  $27.5 million in assets and roughly  $33.8 million in liabilities. The company laid off more than 250 employees last week.

Universal Pictures and 20th Century Fox loaned up to $17 million to Rhythm & Hues so it could continue working on two big-budget film releases while under bankruptcy protection, according to court filings. Universal has its futuristic adventure "R.I.P.D." at the company and Fox has the children's adventure “Percy Jackson: Sea of Monsters" there.

In addition, Legendary Pictures is loaning the company nearly $5 million to work on its medieval action film "Seventh Son," according to court documents. Rhythm & Hues is an investor on that film.

Peter S. Fishman, director at Houlihan Lokey, will work with John Hedge of Scouler & Company, who is serving as the company’s chief restructuring officer to guide Rhythm & Hues hrough the sale process. Bob Baradaran and Brian L. Davidoff of Greenberg Glusker will continue to serve as legal counsel to Rhythm & Hues.