Digital Domain’s Quick Sale Questioned by Judge

Digital Domain Media Group Inc. (DDMGQ), the bankrupt special-effects company behind the movies “Transformers” and James Cameron’s “Titanic,” may need to delay an auction for its main assets, a judge said.

U.S. Bankruptcy Judge Brendan Linehan Shannon today called the sale timeline requested by Digital Domain “unprecedented” at a hearing in Wilmington, Delaware. To win approval to hold an auction on Sept. 21, 10 days after filing for bankruptcy, the company would have to present Shannon with evidence “that I don’t know that I’ve ever seen,” he said.

He asked the company to discuss the auction schedule during a break in today’s hearing before Digital Domain began presenting its case.

The company, with operations in Florida, California, Canada, India, China and Abu Dhabi, plans to hold an auction for most of its assets. A unit of Searchlight Capital Partners LP would be the initial bidder, with an offer of $15 million, according to court papers.

The sale-related deadlines are tied to a so-called debtor- in-possession loan that would give Digital Domain enough money to operate while in bankruptcy.

Paying Employees

After the break, lender attorney David M. Hillman offered to remove the deadlines from the part of the loan that would be used to temporarily pay employee salaries. That would free up about $4 million that Digital Domain could use to meet its current payroll, company attorney Robert J. Feinstein said.

Shannon said the idea was worth exploring. He approved a related request to give the company authority to pay employees.

Digital Domain filed for bankruptcy yesterday, blaming a cash crisis that hit less than a year after the company went public. The Port St. Lucie, Florida-based company, with 765 employees, said it also sought court protection in Canada.

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.

The case is In re Digital Domain Media Group Inc., 12-12568, U.S. Bankruptcy Court, District of Delaware (Wilmington).

-- Editors: Stephen Farr, Charles Carter

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net