Digital Domain Media Group Files for Bankruptcy in Delaware

On September 11, 2012, Digital Domain Media Group and various related entities (collectively, "Digital Domain") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Digital Domain filed several "first day" pleadings with the Bankruptcy Court, one of which is the Declaration of Digital Domain's Chief Restructuring Officer in Support of First Day Motions (the "Declaration").  As set forth in the Declaration, Digital Domain provides digital visual effects and computer-generated animation to the motion picture industry.  One of the related entities, Digital Domain Productions, has provided digital production work to over 90 major motion pictures.  Declaration at *3.  Mothership Media, Inc., a Digital Domain subsidiary, focuses on advertisement and entertainment "from concept to completion."  Id.  Another subsidiary, Digital Domain Institute, is a for-profit learning center which partnered with Florida State University to provide graduates with a Bachelor of Fine Arts degree focusing on motion picture and technical animation arts.  Decl. at *8. As of the date Digital Domain filed for bankruptcy, the company employs approximately 930 employees spread throughout is production facilities in California, Florida and British Columbia.  Decl. at *10.

According to Digital Domain's bankruptcy petition, the company has assets of $205 million against liabilities of $214 million. Assets include property and equipment which Digital Domain values at $78 million and film inventory valued at $29 million.  Decl. at *11. The company's debt consists of secured and unsecured notes, government contracts and lease obligations and traditional trade debt.  The debt includes $57 million in warrant and debt liabilities, $33 million in accounts payable and $35 million in government lease obligations.  Id.

Digital Domain attributes its bankruptcy to "negative working capital," which in turn caused the company to breach various liquidity covenants contained in its senior secured notes.  The senior secured lender issued a notice of default in August 2012. Although the parties entered into short term forbearance agreements, they were unable to reach a long term agreement concerning the defaults.  Decl. at 15.

Days before filing for bankruptcy, Digital Domain implemented a "strategic realignment" under which the company will focus on its core business of producing digital visual effects, animation and digital production for the entertainment and advertising industries.  As part of its restructuring, the company is stopping operations at its Port St. Lucie facility.  While in bankruptcy, the Senior Noteholders have agreed to provide debtor in possession financing while Digital Domain prepares for a sale of assets under section 363 of the Bankruptcy Code. 

The Digital Domain bankruptcy is before Judge Brendan L. Shannon of the United States Bankruptcy Court for the District of Delaware.  Digital Domain is represented by the law firm Pachulski Stang Ziehl and Jones LLP.  The bankruptcy is proceeding under case number 12-12568.  The Office of the United States Trustee has scheduled a meeting of creditors for October 19, 2012 at 10:30 a.m..

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Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP.  Jason practices before the Delaware Bankruptcy Court.  You can reach Jason at 302 252 5833 or [email protected].

For  readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts that address various bankruptcy-related issues:

    Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

    Seeking Relief from the Automatic Stay in Delaware.

    A Tale of Two Bankruptcy Auctions.

    What Information is Required in a Chapter 11 Disclosure Statement?