Banks tighten, exit movie business
Despite the credit crunch, there are still people willing to loan money for film production. But there are fewer of them, they’re lending less, and they’re doing it more slowly.
Only indie producers with the most commercial projects and good access to equity can be confident of getting the bank deals they need to close their financing. The market for studio slate deals, meanwhile, has frozen completely.
Yet film lending has performed relatively well in recent times, certainly compared with the supposedly safer investments in bricks and mortar that have plunged the banking system deep into crisis. These larger financial troubles, not any specific problem with their film activities, has driven several big banks and hedge funds to exit the movie business.
The exodus has been led by European institutions such as Societe Generale, Natexis, Deutsche Bank, Dresdner Bank, Royal Bank of Scotland, Bank of Ireland and Allianz.
Allied Irish Bank is one Euro player that has kept its team in place, though it seems to be focusing more on managing existing deals than writing new ones. Hong Kong’s Standard Chartered continues to bid for Asian-themed projects.
The lenders left in the business are predominantly those smaller California banks that have always regarded film as a core activity. They include Comerica, Union Bank of California, CIT, U.S. Bank, City National Bank, National Bank of California and Citibank.
“The usual suspects are still there, the old-school guys who’ve been around for long enough to know the business and structure things correctly,” says Myles Nestel of financing outfit Oceana.
For single projects, these banks provide the traditional package of discounting presales and modest gap finance, maybe 15%-20% of budgets. “Although there are fewer banks, there are also fewer deals to bid on,” Comerica’s Jared Underwood says. “So it’s still pretty competitive. For a strong film, there will be three or four banks bidding.”
If they are lending less, it’s because values have collapsed.
“A year ago, maybe a film had three major European territories unsold with estimates of $2 million, so we would have lent $1 million against that. Today those same territories may be worth just $1.2 million, so we would only lend $600,000,” Underwood explains.
Over at U.S. Bank, Joan Stigliano says: “We are doing things more conservatively. For single-picture deals, we’re being much more careful regarding any gap financing. For the foreseeable future, that’s going to be the exception rather than the rule. We’ll do it for clients with good relationships and access to capital. It’s hard to do those deals where the producer is scraping for every dollar.”
There’s been a similar reduction in mezzanine finance. “In my space, the mezz space, it’s contracted because people have lost a lot of money,” Nestel says.
Aside from Oceana, Diane Stidham and Danny Mandel are still active at Newbridge. Aramid has gone quiet after a frenzied couple of years of dealmaking, having invested its $300 million fund in a staggering 40 movies, but CEO Simon Fawcett insists they are still in the game, though much more selectively.
At least for single-project deals, there are still banks to turn to. That’s not true when it comes to the massive slate deals the studios have relied upon in recent years. The rot set in last summer when Deutsche failed to float an aggressive $400 million deal for Paramount. That triggered a domino effect of other deals stalling or going down, including a $300 million financing for Universal.
The irony is that amid the collapsing global economy, film still looks like a relatively attractive bet for lenders, if only they can find the capital to fund it. As Stigliano says: “There’s an opportunity that exists this year, versus the other core commercial banking business. There’s something to be said for this market being viewed as a potential for growth, if you are using good underwriting criteria, because lending to a house builder or a commodities-backed business is very tough.”