The company, with operations in Florida, California, Canada, India, China and Abu Dhabi, plans to hold an auction for most of its assets in which a unit of Searchlight Capital Partners LP would be the initial, or so-called stalking-horse, bidder, according to papers filed today in U.S. Bankruptcy Court in Wilmington, Delaware.
“As a result of negative working capital, the company failed to meet the liquidity covenants and was running out of cash,” Michael Katzenstein, chief restructuring officer, said in a court filing. The company defaulted on senior note payments, he said.
The company, which counted former Miami Dolphins football star Dan Marino among its investors, had assets of $205 million and debt of $214 million as of June, according to Chapter 11 papers.
Among the largest unsecured creditors listed in Digital Domain’s petition were Carl Stork, owed $5 million in a litigation settlement; Reliance Mediaworks Ltd. (RMW) of Mumbai, owed $4.6 million; and Legendary Pictures of Burbank, California, owed $3 million.
DDMG asked a judge to approve as much as $20 million in financing to carry it through reorganization.
The company is also seeking approval of its agreement to make the Searchlight unit, VFX Holdings LLC, the stalking-horse bidder. VFX has offered $15 million for DDMG. Should VFX be outbid at the proposed auction, it would collect a $375,000 breakup fee, according to court papers.
The company’s debt includes $40 million in secured notes, $8 million in subordinated notes, $12.5 million in so-called trade debt owed to suppliers and other vendors and $14.9 million in other obligations.
A former worker at the company’s Port St. Lucie, Florida facility sued Digital Domain today, claiming managers shuttered the business there without first giving employees a 60-day notice, as required under federal law.
Julie Miller, a spokeswoman for Digital Domain, didn’t immediately return a call for comment about the lawsuit.
Digital Domain was co-founded by Cameron and went public in November, selling 4.92 million shares at $8.50 each. The shares plunged 84 percent today to 8.9 cents in over-the-counter trading.
In a statement today, the company said it would sell some assets and filed for Chapter 11 in an effort “to ensure the long-term future of its core business.”
The Port St. Lucie-based company, with 765 employees, said it also sought court protection in Canada.
The case is In re Digital Domain Media Group Inc. (DDMGQ), 12-12568, U.S. Bankruptcy Court, District of Delaware (Wilmington).