JPMorgan, Bank of America replace Commerzbank as senior investors in Melrose II
Paramount has found new investors to back its tentpoles, including this week’s “Transformers: Dark of the Moon” — a further indication that big, commercial banks are once again warming up to Hollywood.
Sources say JPMorgan and Bank of America have replaced Commerzbank as senior lenders in Melrose II, an investment structure originally valued at $300 million that was set up to co-finance select Paramount movies, primarily high-profile sequels.
Latest restructuring, which does not constitute a new credit line, closed June 15 and allows existing investors to continue co-financing a slate, including sequels of films they originally funded.
Legal ramifications prohibited financial institutions from discussing terms of their own arrangements with the fund.
Commerzbank did not comment on its withdrawal from Melrose II. Sources close to the deal said the bank, like many others in Europe, has looked to shrink its media lending in recent months and had not wanted to fund future films, sequels or otherwise. The German bank’s resistance posed a problem for remaining equity investors who needed a senior lender in the structure to continue financing projects.
While specific titles have not been disclosed, Paramount has a number of franchises it would like to keep on the bigscreen for years, including “Mission: Impossible,” whose fourth outing bows in December, as well as “Star Trek,” “G.I. Joe,” and the reboot of the Jack Ryan thrillers. It also wants to continue its “Transformers” franchise.
Several financiers, including German bank Dresdner, in 2006 backed Melrose II, which covered 30 Par pics, including “Failure to Launch,” “Mission: Impossible 3” and “Jackass Number 2.” Commerzbank purchased Dresdner in 2009.
A number of those investors had also supported Melrose I, in 2004, a $225 million fund used to bankroll 25 studio films, beginning with “Mean Girls.”
Observers say the bank swap is the latest sign that credit lines from various sources are loosening after studios were forced to compete for funds from only a handful of lenders during the height of the recession.
Before 2008, more than 30 banks were active in the film financing sector. Now, that number hovers somewhere around 10, but observers expect it to slowly increase.
Some institutions have become active in the media-lending space in recent months, including OneWest, UBS and SunTrust, the latter of which played a key role in Legendary’s $700 million-plus credit line, which Variety first reported in April.
While there may not be a bevy of new equity coming into the film-financing market, companies with existing asset bases, like Paramount and Legendary, are seeing some strategic transactions that may not have been possible when the credit markets froze up two years ago.
Existing asset bases provide more security against which to lend, but that doesn’t mean there isn’t any money for new ventures. Major bank investment in Tom Ortenberg’s Open Road Films, created by Regal Entertainment and AMC Entertainment, hint that money is creeping back into the market for new ventures with good management teams in place that have secure track records.
Slate financing arrangements seldom include sequel rights unless the same investors who funded the originals are the ones ponying up coin. That’s because studios are more inclined to reduce the risk by co-financing an untested project rather than give away a stake in a more sure-fire thing like a sequel. Any good slate-financing arrangement, many bank insiders said, will include the option for financiers to invest in sequels resulting from their films.
The right to invest in sequels seems fitting in a climate where investors want more safeguards than they did just a few years ago.
Lending against foreign presales has become one of the top ways to borrow money for an independent film while studios are increasingly leveraging ultimates — borrowing against the “ultimate” amount of money a movie is projected to make based on its box office numbers after theatrical release — to get loans.