Carved profitable niche as 'gap' finance market

Formed two years ago by producer Robert Greenhut and investment banker Jon Ein, Foundry Film Partners has quietly carved out a profitable niche for itself in the “gap” finance market, where banks and others institutions lend against a film’s future foreign sales.

Since its inception, Foundry has financed six films and plans to make between six and 10 investments this year. Together with its partners, Foundry aims to have more than $100 million invested in the global film and TV business by the year 2000.

The company recently more than doubled its initial capitalization of $10 million with the backing of institutional financial partners Cramer, Rosenthal, McGlynn and Centre Reinsurance, a subsidiary of the Zurich Group. It also maintains a close relationship with Satoru Iseki’s Nippon Film Development and Finance, an affiliate of Japanese distrib Nippon Herald.

Foundry grew out of a meeting in 1994 between Greenhut, who has produced films for such directors as Woody Allen, Sidney Lumet, Mike Nichols and Martin Scorsese, and Ein, who was attending Harvard Business School at the time.

Before earning his master’s in business administration at Harvard in 1994, Ein worked in corporate finance at S.G. Warburg and in the mergers and acquisitions department at Donaldson, Lufkin & Jenrette.

Greenhut and Ein chose New York for their company’s base because of the city’s strategic location halfway between Europe, where most of its films are sourced and sold, and Hollywood.

Foundry was initially conceived as a marriage between Greenhut’s production skills and Ein’s Wall Street expertise, but the goals of the company’s investors and the realities of the marketplace have led to an emphasis on finance.

By providing collateral, often in less than 24 hours, Foundry helps producers obtain funding from lenders such as the Films Group and Coutts & Co. In exchange for its investment Foundry earns hefty returns of more than 20%, according to industry sources.

It took Foundry more than 10 months to find a project that met its creative and financial criteria. Its first investment was David Dobkin’s dark comedy “Clay Pigeons,” an upcoming Gramercy Pictures release starring Vince Vaughn and Joaquin Phoenix.

Although the gap finance market has become increasingly risky because of cut-throat competition and the Asian economic crisis, Foundry has avoided problems by sticking to projects being handled by such high-caliber sales agents as Intermedia, Capitol Sales, Summit, Goldwyn Films, Winchester and Kathy Morgan Intl.

“The key to this business is the sales agent, a fact that becomes abundantly clear in bad markets,” says Ein. “We have been very lucky to work with the top sales agents and have been, we hope, a supportive financing partner for them.”

Another factor that gives Ein comfort when evaluating potential investments is the participation of the U.K. Arts Council, which provided lottery money to two films that Foundry backed.

There was lottery money behind David Caffrey’s “Divorcing Jack,” a comedy starring David Thewlis as an Irish newspaper columnist, and Po Chi Leong’s “Wisdom of Crocodiles,” a psychological thriller starring Jude Law and Elina Lowensohn that Miramax will release in the U.S.

With the exception of writer-director Phillip Messina’s ensemble comedy “With Friends Like These,” which Greenhut pro-duced and Penny Marshall executive produced, Greenhut has not handled producing chores on any of the films in which Foundry has invested.

“As a company, we need to find a way to use our production expertise to help the activities of the fund more than we have,” admits Greenhut, whose credits include “Annie Hall,” “Arthur,” “Wolf” and “A League of Their Own.”

Still, even when Foundry is acting solely as financier, Greenhut’s production experience comes in handy. On Deane Taylor’s $12 million animated feature “Carnivale,” Greenhut is helping to cast the voices for the story about four children lured into a mysterious theme park.

Greenhut, 54, is also producing films outside of Foundry, including Arne Glimcher’s Antonio Banderas starrer “White River Kid,” which is being financed by Eli Samaha.

Until Foundry’s recent investment in Chris Roberts’ “Wing Commander,” a $30 million bigscreen adaptation of the bestsel-ling videogame that 20th Century Fox will distribute domestically, all of the films it financed had budgets between $5 million and $10 million.

Following its recent re-capitalization, Foundry has been looking at projects with budgets of up to $50 million.

The company recently relocated its creative executive Joanna Levi to the West Coast to track more mainstream projects.

In the future, Foundry wants to expand its involvement in the institutional segment of the film finance market, including providing support for credit lines to production companies.

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