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Rhythm & Hues Draws Early Bid in Bankruptcy Sale

Life of Pi
"Life of Pi"

The VFX house behind "Life of Pi" has been aiming for a quick mid-March sale.

South Korea's JS Communications has signed a letter of intent to acquire Rhythm & Hues, the embattled VFX company that handled the majority of the Oscar-winning effects on Life of Pi and filed for chapter 11 bankruptcy protection Feb. 13, The Hollywood Reporter has confirmed.

The VFX house has been hoping for a quick mid-March sale. While JS Communications is the first to bid on Rhythm & Hues, typically bankruptcy auctions like this draw other bidders. 

STORY: Fired Rhythm & Hues Workers Sue Over Terminations Without Notice

A bankruptcy judge previously approved $17 million in loans from Universal and Fox, integral to keeping the VFX house operating for the next few months as it completes work on Universal's R.I.P.D., scheduled for release July 19, and Fox's Percy Jackson: Sea of Monsters, scheduled for Aug. 16. A judge approved an additional $4.9 million in financing that Legendary Pictures would pay Rhythm & Hues for the completion of VFX work on its movie Seventh Son for Warner Bros.

However, those loans will only go so far. At the time of the chapter 11 filing, R&H also was working on two additional Warners films, 300: Rise of an Empire, scheduled for release Aug. 2, and Black Sky. No word on what Warners intends to do with that work.

R&H has tapped Houlihan Lokey to serve as lead financial adviser in the sale of the company.

The company laid off 250 employees during the month. Workers filed a class-action lawsuit against R&H alleging labor violations.

The company’s troubles have underscored a string of problems for the VFX business. Some of the factors affecting the business include intense competitive bidding that leads to companies taking on projects at low, fixed bids; globalization as government incentives and cheap labor abroad has created an uneven playing field; and tight profit margins -- often 5 percent or less -- that can be endangered if a project is canceled or delayed.

Digital Domain filed for chapter 11 bankruptcy protection in 2012 and was sold to China’s Galloping Horse and India’s Reliance MediaWorks for $30.2 million.

STORY: Judge Approves Studios' Loan to Rhythm & Hues

In recent years, VFX companies that have closed their doors include Asylum, CafeFX, The Orphanage and Imagemovers Digital.

The latest troubles at R&H mobilized some in the VFX community to try to raise awareness and address the issues. Close to 500 assembled for an Oscar Sunday rally on Hollywood Boulevard.

The Visual Effects Society, a global honorary society of the VFX industry, plans to hold a "VFX Congress" in the coming weeks to explore solutions to the problems facing the visual-effects industry.