Judge Approves Studios' Loan to Rhythm & Hues

A judge has approved Rhythm & Hues' emergency motion for interim approval of a financing agreement integral to the VFX house's plans to stay in operation for the next few months and complete work on several major motion-picture projects.

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Rhythm & Hues filed for Chapter 11 bankruptcy protection Wednesday and laid off 250 of its 1,400 employees. The company went before a Los Angeles bankruptcy judge Friday.

A judge was asked to approve $17 million in loans from Universal and Fox in several installments: $6 million was to come immediately, $5 million on Feb. 19 and $5 million in March and April. Without the loan, the company wrote in its filing, it would "be unable to operate and will have to liquidate immediately."

The VFX house is up for an Academy Award for special effects for Life of Pi and has worked on many big films over the years. At the time of the bankruptcy filing, it was in the midst of several films for Warners as well as Universal's R.I.P.D., scheduled for release July 19, and Fox's Percy Jackson: Sea of Monsters, scheduled for Aug. 16. 

Warners “demanded return of all materials related to its three projects,” according to one bankruptcy filing, while Fox and Universal were more generous.

The loan would give the company the ability to complete work for Fox and Universal and remain in business for 75 days as it sought a buyer or investor, according to court papers.

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The studios already have advanced Rhythm & Hues about $6 million on an unsecured basis. The loan would give the company about $17 million more. A judge has given a green light on an interim basis, clearing the way for the first $11 million, which will be issued on a first-priority security basis and will bear interest at 6 percent per annum. A judge will consider a final order for the rest at a hearing next month.

Rhythm & Hues averaged nearly $106 million in revenue from 2009 to 2011. A deal to be acquired by Indian-based Prime Focus fell through in January. Executives of the company have blamed cash-flow issues stemming from delays of certain projects for creating the dire situation that precipitated a bankruptcy.

The bankruptcy is being handled by the law firm of Greenberg Glusker.

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner