Digital Domain Bondholders Will be Paid, says Port St. Lucie, Fla.

BRADENTON, Fla. — The city of Port St. Lucie on Florida’s east coast is telling bondholders that the Chapter 11 bankruptcy filing of Digital Domain Media Group Tuesday will not impede debt-service payments on bonds issued for the firm’s abandoned Florida campus.

Port St. Lucie sold $18 million of taxable lease revenue bonds and $21.86 million of taxable lease-revenue recovery zone facility bonds in 2010 for Digital Domain, formerly known as Wyndcrest.

Bond proceeds were used to build and equip a specialized 150,000-square-foot building for the special-effects company’s digital production studio. Digital Domain was to make lease payments to the city, which in turn used the payments for debt service.

In a notice to bondholders, the city said no payments have been missed and it will continue to make the scheduled debt-service payments on time.

The bonds are secured by the city’s covenant to budget and appropriate legally available non-ad valorem revenues to pay debt service, according to Moody’s Investors Service, which carries an A1 rating on the bonds. Standard & Poor’s assigns the bonds an A rating.

Port St. Lucie also owns the 15.5 acres of land where the studio was built, and had leased it to the company for 20 years.

On Sept. 7, Digital Domain, which traded under the ticker DDMG, announced that it had begun a “strategic realignment” and the cessation of its Port St. Lucie operations. It is in the process of being delisted. The company had already sought forbearance on several loans, and was facing severe liquidity problems.

Some 300 Florida employees — many with the company less than a year — were laid off and filed a complaint with the bankruptcy court saying they had not been given 60 days notice as required by the Worker Adjustment and Retraining Notification Act.

One couple was literally driving to Florida to start jobs the day Digital closed down the Port St. Lucie facility, city spokesman Ed Cunningham said Friday.

Because of the layoffs, and other issues, Digital Domain has been told by Port St. Lucie that it is in default on its lease, Cunningham said.

“The agreement required that they hire and maintain a minimum of 300 employees,” he said.

In addition, the company owed the city $385,000 for construction cost overruns and $56,000 for property insurance, which are payments the city is seeking as an unsecured creditor in the bankruptcy case.

Digital was also paid $7.5 million for incentives to move to Port St. Lucie, and the funds were paid as milestones were reached such as hiring 300 employees. The city will try to claw back that funding, Cunningham said.

City officials began an inventory in Digital’s building last week in search of $7 million in equipment that was also purchased with bond proceeds.

Since the city has declared the company in default of its lease work, Cunningham said a new tenant will be sought.

“We hope to market it to companies with similar goals and products [as Digital] because the building is well-suited toward that,” he said. “We’d be happy to talk to any company that has ideas.”

Digital Domain, which has done visual effects for more than 90 major motion pictures such as Titanic and the Transformers, listed debts of $214.8 million and assets of $205 million when bankruptcy was filed. Some 13 of its companies were placed into Chapter 11.

The company is asking the court for approval to hold a quick auction, saying that it would protect more than 700 jobs elsewhere in the U.S. and Canada and allow ongoing projects to proceed.

After going public last November with an initial public offering, Digital Domain received a permit to begin operations at the new Port St. Lucie building in December.

In addition to what is owed the city, the state of Florida gave the company $20 million in incentives that were approved outside the traditional vetting process. Gov. Rick Scott has ordered an investigation to review what occurred.

Digital Domain said in court documents that it had contracted to receive $135 million in government stimulus financing from various Florida governments since 2009, including tax credits, cash grants, land grants, low-interest financing and tax incentives. The company also has some agreements pending with the city of West Palm Beach.

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