Some $50 mil in accelerated loan payments would've kept shingle going
Film Department founders Mark Gill and Neal Sacker, who are shuttering their fledgling indie, insist they were the victims of poor timing and the credit crunch — and they’re already promising they’ll be back.
“We’re very fortunate that we’ve had a lot of interest in getting involved in other companies,” Gill told Variety on Thursday.
Gill and Sacker, who met while working for Miramax in the late 1990s, cited the banking meltdown as the key reason that their business model — making quality films with recognizable stars for under $50 million — failed. Studios stopped paying the license fees for such pics in the wake of the credit crunch, leaving the Film Department without the cash it needed to keep operating amid the needs to service accelerating debt payments.
“We were debt-free and cash poor,” Gill noted Thursday. “We had a company that worked operationally. We’ve gotten pretty close to getting new financing, but we just weren’t able to.”
It’s an ironic conclusion for the Film Department, which announced Thursday that it would close as of May 27. Three years ago, Gill declared, “Yes, the sky really is falling” in a speech at the L.A. Film Festival’s Financing Conference — detailing a long list of the hurdles facing independent film — but wound up with a happy ending, telling the audience that the solution was to make fewer movies of higher quality.
“I’m saying we have to do better. Much better,” he said at the time. “It all comes down to what a former glove merchant named Schmuel Gelbfisz said more than 50 years ago: ‘Make fewer better.’ … If we give the audience fewer and better movies, we might even create a virtuous cycle. People might start saying, ‘Hey, the movies are good again.'”
At that point, Gill had been president of Miramax and had headed Warner Independent before it was shut down.
As of Thursday, the Film Department had 11 employees. The company noted Thursday that it had generated $90 million in revenues in the last 18 months but was not allowed to keep it. Though it had paid off $40 million in senior debt to commercial banks under customary terms over that period, it was forced to speed repayment of its second-lien notes in the aftermath of the 2009 credit crisis. The result was a $50 million early payment that would otherwise have been used to keep the lights on.
It had sought to raise $200 million in new private equity and debt to become a U.S. film distributor as well as a financier-producer but was unable to close its recapitalization in challenging capital markets.
“We managed to hold on in this impossible position for 15 months,” Gill said in a written statement, “but we couldn’t survive indefinitely.”
Last August the Film Department pulled its initial public offering, under which it had attracted investors who were close to ponying up $200 million in new financing to produce, acquire and release five to 10 films a year. It first filed for an IPO in December 2009 but was unable to woo investors even after cutting the share price by more than half.
“We came within inches of closing our recapitalization on three occasions, but unfortunately, close isn’t good enough,” said Sacker, vice chairman and COO, in the statement. “We’re grateful to everyone — filmmakers, talent, financiers, industry experts and our staff — who contributed considerable time, effort, expertise and capital to the company.”
The Film Department financed and produced “Law Abiding Citizen,” which grossed $133 million at the worldwide box office. It also financed and produced romantic comedy “The Rebound,” starring Catherine Zeta-Jones and Justin Bartha, and “A Little Bit of Heaven,” a love story starring Kate Hudson, Gael Garcia Bernal, Whoopi Goldberg and Kathy Bates.
The company is in talks to distribute “The Rebound” and “A Little Bit of Heaven” in the U.S. via third parties.