Judge approves interim loan for Rhythm & Hues

A federal judge approved a $17-million loan from two movie studios to keep the lights on at troubled Rhythm & Hues, the award-winning visual effects company that worked on the Oscar-nominated “Life of Pi.”

Rhythm & Hues, based in El Segundo, on Wednesday filed for bankruptcy protection under Chapter 11 of the federal bankruptcy code after laying off 250 employees.

As part of its plan to avoid liquidation, Rhythm & Hues said it secured a $17-million loan from Universal Studios and 20th Century Fox to complete work on current projects, including “R.I.P.D.” and “Percy Jackson: Sea of Monsters.” Warner Bros., which is owed $4.9 million, is not providing any financing, the company said in court filings.

On Friday a bankruptcy court judge approved the loan on an interim basis, giving a financial lifeline to Rhythm & Hues, which experienced a sharp fall in revenues last year.

The company posted a $22.5-million net loss in 2012 as revenue fell to $95 million, down from $121 million in 2011, court records state.

Rhythm & Hues cited several factors, including a decrease in film production at Fox and Universal -- historically two of its largest customers – as well as rising competition from rivals in Canada, Britain, Australia and New Zealand.

The company added that higher labor costs in Los Angeles, such as the requirement to pay overtime, also contributed to its financial woes. At the end of 2012, the company had assets of $27 million and liabilities of $33.8 million.

In other developments Friday, the visual effects company was hit with a class-action lawsuit filed on behalf of 250 L.A.-based employees who lost their jobs this week before the bankruptcy filing.

Thomas Capizzio, a 16-year employee, alleged in the lawsuit that he and other workers at the studio were not given proper notice of the layoffs just days before the filing on Wednesday. The layoff violates a federal law that requires that employees be given 60 days’ notice before a layoff, the suit alleges.

Founded in 1987, Rhythm & Hues has created effects for such movies as “The Golden Compass,” “Babe,” “Django Unchained,” “Snow White and the Huntsman” and “Life of Pi,” for which it won an award from the British Academy of Film and Television Arts.

The company also has studios in Canada, India, Malaysia and Taiwan.

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