One hit does wonders for bankers who've seen the indie biz go bust
The success of “The King’s Speech” couldn’t come at a better time for Prescience, the U.K. financier whose debt fund Aegis covered a majority of the film’s $13 million budget.Prescience is in the midst of a fresh round of fundraising for Aegis, set to double the fund to $100 million by March, with a target of $250 million within two years. Nothing impresses potential investors more than the combination of box office gold and awards glory. “Aegis is expanding geometrically because the profile of ‘The King’s Speech’ is so colossal,” says Prescience director Paul Brett. “The investors got their money back plus a premium before the film had even gone through an American projector.” Of course, no one expects hits like “The King’s Speech” to come along every day, or even every year. As the project’s gap financier, Aegis only has a limited share in the pic’s financial upside after recouping its loans. But after a tough 18 months when many banks pulled out of financing indie production, the kudos for “The King’s Speech” are a welcome bit of good news to encourage the handful of key lenders who have stuck with the sector. It’s not an isolated example. A wider uptick in sales activity for selected projects at Toronto and the American Film Market has given hope to the handful of banks and other gap financiers left in the business that the market has rediscovered a healthy equilibrium, and that opportunities now exist for a cautious expansion of their portfolios. Like Aegis, Silver Reel, a Cayman Island debt fund run out of Switzerland, is raising fresh coin and looking to step up into bigger American projects. Canadian lender Aver is widening its search for international deals. In the U.S., stalwart California banks such as Union Bank, City National Bank and Comerica have benefited from the disappearance of many competitors, and are well-positioned to take advantage of any recovery in the indie market. Yet all are on guard against a return to the days when over-aggressive lenders bankrolled too many underdeveloped projects that distributors didn’t want, which led to a painful correction for the indie market. “The last couple of years have been as tough as I ever remember in my 20 years in the business,” says City National Bank’s Adrian Ward. “It’s nice to be on the upward swing for the first time in 18 months. We’re certainly doing more business now. The market is pointing in the right direction, which gives us the ability to be more flexible in terms of gap deals.” “I agree that sales activity seems to be improving, but I don’t see any new banks coming into the space,” says Union’s Bryan LaCour. “The business is not under-banked, there’s a healthy state of competition between a small handful of banks. But I don’t see anyone doing the aggressive deals they once were.” Union increased its film lending slightly in 2010 to $350 million, including what LaCour calls “the largest gap deal on any individual project in my career.” “We find ourselves focusing on bigger-budget commercial pictures, with the right sales agent and the right cast. There are 10 to 15 companies out there bringing most of the commercial projects to the marketplace.” Aegis has financed 12 films, mostly British, since launching in early 2009 with an initial $50 million fund. It delivered a 14% return to investors in its first year, and is on course for a similar result this year. With greater funds at its disposal, it’s the U.S. mini-majors targeted for co-financing opportunities. “We’ll be doing larger films, up to $25 million rather than $15 million, with more of a U.S. focus,” says Prescience’s commercial director James Swarbrick. Silver Reel, which has invested $30 million into seven films including “Ironclad,” “Killing Bono” and “Hysteria” since launching in September 2009, is also looking to raise its fund to $100 million. “We’ll become much more U.S.-oriented in 2011, getting into bigger budgets up to $40 million,” says Silver Reel’s Ian Hutchinson. “It’s a binary market, where the very best big projects are still attracting significant offers from buyers, and small films too if they are cleverly made, but it’s the middle ground which is it or miss. We won’t be backing many films below $15 million going forward.” But not all lenders are so bullish. Faced with such competition, other banks and boutique financiers are continuing to rein back on film lending. The U.K.’s BMS Finance, for example, which provided gap for “Made in Dagenham,” isn’t actively looking for new gap deals at the moment. It analyzed the prospects for lower-budget European indie films and concluded that too many senior debt lenders are chasing too few viable deals. “There’s always the danger of another production bubble,” admits Silver Reel’s Hutchinson. “But my impression, at least at the moment, is that there’s enough business to go around.”
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