VFX Giant Technicolor Files For Chapter 15 Amid Restructuring, Blames Coronavirus

Belts are tightening at Technicolor SA, the beleaguered conglomerate that houses an array of vfx subsidiaries. The company has filed for Chapter 15 in a bankruptcy court in Texas, amid a restructuring effort in its home country, France.

Technicolor is €1.44 (USD$1.59) billion in debt and facing insolvency. On Monday, it announced an agreement in principle with its creditors, which involves €420 million in new debt financing and a debt to equity swap (details here). Shareholders will be asked to back the proposal on July 20, and if they do, it will then go before a French judge for approval.

Chapter 15 in the U.S. does not represent a filing for bankruptcy. Rather, it provides a framework for dealing with issues that arise in cross-border insolvencies. The move is intended to protect Technicolor’s U.S. assets from enforcement proceedings or direct appropriation by individual creditors.

Technicolor has three main divisions: DVD services, electronics, and and production services (vfx, post-production, and animation). The DVD arm has taken a battering in recent years; in its U.S. filing, the company pointed to the general shift from traditional media as one reason for its troubles.

But storm clouds are also hanging over its production units, which include MPC, Mr. X, The Mill, Mikros Image, and Technicolor Animation Productions. The filing also noted, “Compounding matters, the Covid-19 pandemic has caused theatrical releases to be put on hold and production timelines to be pushed back, significantly depressing Technicolor’s revenue from production services.”

The company reiterated this argument in a statement:

Like many companies in the media and entertainment industry, we have been severely impacted by the Covid-19 global pandemic. On Monday, June 22, we announced that we had reached an agreement in principle with our lenders on a new financial framework for our long-term sustainability. It is the financial framework from which we will build a stronger future as a company — and in turn become an even stronger partner to our clients. That plan includes the infusion of €420 million of new money into the company and deleveraging.

Our new financial framework, and the approval processes necessary to implement it, will not affect our operations. Delivering superior service and innovative solutions to our clients is our priority — as is maintaining the strong relationships we have with them.

Technicolor has invoked the pandemic before as a justification for changes, but the company’s woes started before the virus hit. Here are some recent examples of upheaval at the company:

• Last month, Mill Film and Mr. X merged under the latter name. A statement from Mill Film described the move as “a direct and necessary response” to the effects of the coronavirus.
• In the same month, Moody’s Investors Service cut Technicolor’s rating to Caa2 from Caa1, citing “the pandemic’s impact on Technicolor’s operating performance and in particular the uncertainties regarding the execution of the proposed rights issue to raise approx. €300 million,” but also noting the company’s “weak operating performance” prior to the pandemic.
• In April, labor activists from Canada’s Art Babbitt Appreciation Society castigated Technicolor in a letter to its CEO Richard Moat, alleging hundreds of layoffs at three studios in Montreal: MPC, Mr. X, and Mill Film. Technicolor did not respond to Cartoon Brew’s request for comment on this matter.
• Last December, MPC’s Vancouver studio was abruptly shut down. It had recently worked on Pokémon Detective Pikachu, Maleficent: Mistress of Evil, Cats, and the title character’s redesign in Sonic the Hedghehog.
• Also last December, Technicolor and its former CEO Frederic Rose were indicted in France on charges of fraud and breach of trust. The charges were linked to the 2011 bankruptcy of post-production firm Quinta Industries, and Technicolor’s acquisition of the company the following month.

Between them, Technicolor’s studios work on dozens of features and series every year. Recent projects include Ad Astra, The Lion King, Lady and the Tramp, The Call of the Wild, Dolittle, Alvinnn!!! and The Chipmunks, Elena of Avalor, and The Mandalorian. Forthcoming projects include The Spongebob Movie: Sponge on the Run, The Little Mermaid, and West Side Story.