(Reuters) - Digital Domain Media Group Inc, which won Academy Awards for visual effects in films including "Titanic," filed for bankruptcy protection on Tuesday and said its production business would be sold, raising questions about millions of dollars in Florida subsidies for a new studio.
The company, whose founders include "Titanic" director James Cameron, listed total debts of $214.9 million and total assets of $205.0 million in its Chapter 11 filing.
Digital Domain said it had agreed to sell its production business to private equity fund Searchlight Capital Partners for $15 million. The sale to Searchlight, which manages more than $860 million, is subject to potential other bids through a one-day auction on September 21, as required by the bankruptcy code.
The bankruptcy is a black eye for Florida state and local officials who committed $135 million to subsidize the construction of a state-of-the-art studio in Port St. Lucie, which the company closed last week.
It was not immediately clear how much of the promised subsidies were paid, but the Associated Press reported on Monday that Governor Rick Scott had ordered a probe into the state incentives.
Digital Domain has worked on more than 90 major motion pictures, including "Pirates of the Caribbean: At World's End," "Transformers," "The Curious Case of Benjamin Button," "Star Trek" and "X-Men: First Class".
The company also recently ventured into movie production by co-producing the movie version of the popular science fiction novel "Ender's Game," starring Harrison Ford, which is expected to be released next year.
Digital Domain, like other industry players, is struggling with low margins as movie studios can pick from a range of vendors around the world to produce computer-generated images.
The company specializes in creating realistic computer-generated human characters, and said in June it planned to produce virtual Elvis Presley likenesses across various platforms, including live shows, TV and online.
Digital Domain raised $42 million in an initial public offering in November but said last month that it was looking at strategic alternatives and had hired Wells Fargo Securities LLC as financial adviser.
The company said in court documents that it was in breach of conditions on some borrowing.
"As a result of negative working capital, the company failed to meet the liquidity covenants and was running out of cash," Chief Restructuring Officer Michael Katzenstein said.
Former Chairman and Chief Executive John Textor, who is also the company's second-biggest shareholder, resigned last week, saying he was in "profound disagreement" with the decision to close the Florida studio.
As of August 28, Textor controlled about a quarter of Digital Domain, according to Thomson Reuters data. Private equity firm Palm Beach Capital is the company's largest shareholder with a 38 percent stake as of August 14.
Searchlight, which manages about $860 million, was founded in 2010 by senior partners from investment management firms Kohlberg Kravis Roberts & Co, the Ontario Teachers' Pension Plan and Apollo Global Management LLC.
Digital Domain listed Reliance Mediaworks Ltd, Legendary Pictures and Bell Technologies Inc as among its largest unsecured creditors.
Digital Domain shares closed at 55.4 cents on Monday, giving it a market value of $24 million, down from about $400 million on May 1 when the stock traded as high as $9.16.
The Case is In re: Digital Domain Media Group Inc, Case No. 12-12568, U.S. Bankruptcy Court, District of Delaware.
(Additional reporting by Sakthi Prasad; Editing by Saumyadeb Chakrabarty, Rodney Joyce and Ted Kerr)