Rhythm & Hues bankruptcy update: Court

Updated at 8:50 p.m. PST

JS Communications of South Korea’s “Stalking Horse” bid for bankrupt vfx firm Rhythm & Hues has been approved by the court.

Peter Fishman of investment bank Houlihan Lokey, which is handling the sale of R&H, told Variety the Korean firm’s bid would assume the $16 million in loans from Fox and Universal and put another $1 million into the company. Those loans from the studios have kept the doors open at R&H during bankruptcy. JS Communications will file an asset purchase agreement by March 19.

The court decision does not ensure that JS Communications will win the upcoming auction, but the company is R&H’s preferred new owner and R&H’s has tried to tilt the process in JS’s favor. JS had told Houlihan Lokey it would only proceed to bid on R&H at auction if its Stalking Horse bid was accepted.

JS had asked for a “Break-up Fee” of $675,000 should another bidder win out and had threatened not to proceed with its bid unless that figure were met. Such a large fee would discourage other bidders. However the court approved a smaller fee of around $420,000 and JS has accepted that figure.

The Stalking Horse bid sets the floor for future bids and ensures there is a buyer even if no other bidders enter the auction. Numerous buyers are circling R&H, including corporations and high-net-worth individuals. Houlihan Lokey says it has received 20 NDAs from interested parties and it expects around 10 to do on-site due diligence. Bids must be submitted by March 22.

The auction will be held March 27, followed by a court hearing the next day to confirm the results of the auction. If all goes as planned the sale would be concluded on March 29.

The court also issued an order preventing shutoff of utilities during the bankruptcy and authorized R&H to pay, “in its discretion,” wages due John Hughes, Keith Goldfarb and Prashant Buyyala from before the bankruptcy filing.

Rhythm & Hues created the CG animals for “Life of Pi,” which won this year’s visual effects Oscar, and is famous for its expertise in creating digital characters, especially animals. Prior to this bankruptcy, it was known for its egalitarian management and its artist-friendly atmosphere. However it has already laid off more than 200 staffers following the bankruptcy and many are unlikely to recover the full amounts they’ve claimed for wages and benefits.

R&H also has two locations in India, one in Malaysia and one in Taiwan, under separate corporations owned by the same principals as the main company. “At this time there is no plan to change anything about those facilities once we come out of bankruptcy,” said R&H principal Lee Berger.

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