Dugan spoke at Tuesday’s Film Finance Forum East presented by Winston Baker in association with Variety in New York, where dozens of financiers and producers gathered to hear experts debate the flow of money in the movie business.
For many, Dugan’s characterization of the atmosphere is all-too-familiar as weary producers continue trying to scrape together capital from fewer resources than were available a few years ago. Banks won’t take production risk like they did before the financial collapse of 2008. Studios, which are looking for the kind of money they bathed in during the slate financing blunderbuss of 2005-2008, aren’t certain of which concessions to make in order to please a new, warier breed of financier.
But at least one panelist insisted that money exists for the right kind of deals.
“The same smart thing that we did eight years ago still works today,” said Chip Seelig, managing partner at the Seelig Group, which arranged a $400 million co-financing deal with 20th Century Fox in January. “People just don’t understand how to manage capital structure … I think people did a bunch of stupid things and lost a bunch of money.”
Seelig’s Fox deal marked the first slate financing arrangement to be completed since the financial meltdown. Most such deals – whereby several investors fund a group of movies at a studio over a period of several years – were backed by hundreds of millions of dollars from hedge funds and banks. But many of those pacts lost money and scared the New York investment community which is still struggling to recover from the financial crisis.
Seelig arranged Fox’s first co-financing deal with Dune Capital Management in 2005, a relationship that continued for several years and helped financed the juggernaut “Avatar.” But Dune included no mezzanine debt (often referred to as “junior debt”). Seelig blames this middle area between senior debt and equity for much of the failures behind Hollywood’s slate deal boom of 2005-2008.
Seelig has a right to lecture about slate deals: Dune is often referred to as perhaps one of the only arrangements of its kind that has really worked (Legendary, which has been a successful studio partner to Warner Bros., is different in that Legendary topper Thomas Tull takes a more active role in selecting films than the investors in Dune).
The Dune deals that have been made and extended over the years also took advantage of frothier capital markets, when banks were eager to pour money into the movie business. The first Dune deal was leveraged by more than 87%, according to Seelig and former Deutsche and Dresdner banker Laura Fazio, who also spoke on Seelig’s panel and helped arrange some of the earlier Dune structures.
But other panelists throughout the day emphasized that investing in cash flows and films alone doesn’t cut it. Financiers must also put money into the management teams which service them.
“I would certainly not advise people to go into pure, passive structured finance transactions in the film business,” said James A. Janowitz, a partner at Pryor Cashman.