Single-Pic Loans Hear Wedding Bells

Three years ago, banker Lewis Horwitz was making single-picture loans to filmmakers at an average of five points above prime plus a loan fee of about five points. Today, increased competition has driven that rate down by one-half, he says, and by more for large loans. Backed by Imperial Bank, Horwitz specializes in complex deals for indie films in the low to midsize budget range.

Not surprisingly, he’s making a lot more production loans these days, including to the $26 million Jean Claude Van Damme actioner “The Quest.”

With other people’s money harder to find, the alternative of bank financing, even at high prices, is increasingly used by filmmakers to get their projects off the ground. Banks active in the independent film sector are generally reporting an upswing in single-picture financing.

“It’s been a good year,” says Hal Sadoff, VP of Nat West Markets, parent company of Coutts & Co., through which it conducts its film lending. “Our overall volume of business is up from last year.”

Coutts this year financed Live Entertainment’s “Shockwave” and Motion Picture Corp. of America’s “Biodome,” as well as MPCA’s low-budget “Albino Alligator.”

“The trend is that buyers only want certain rights, forcing producers to go for bank loans,” says Steve Ransohoff, VP at bonding company Film Finances, who says his own business is up about 15% this year.

Competitive loan rates, say bankers, can be barely higher than the LIBOR rate (currently about 6%) for straight negative pickup deals involving studios. A recent phenomenon is that banks are lending against studio pickups without the addition of a completion bond, taking only a corporate guarantee from the studio against delivery. Banks are becoming more aggressive in film lending, emboldened by the growth of overseas markets, the explosion of global TV and the need for programming. More banks are offering gap financing- a way to bankroll films even if producers have raised only part of their budget through foreign pre-sales.

Afterlife

“Banks have learned that films do have a value, an afterlife, ” Ransohoff says. “So filmmakers can go out having sold only 70% of the budget instead of 110%.” The bank then lends enough to close the gap- in this case, the other 30% of the budget- but at a high price.

The Lewis Horwitz Organization reports that it will make over 50 single-picture loans this year, compared with 35 last year. Half of those are gap-financed, says Horwitz, who over the last year has been able to exact stiffer terms – including fees of as much as 10% of the gap to be financed. Half of those gap loans have been closed already by additional pre-sales, and he’s not worried about the rest. “We’re very careful about our clients and try to keep the gap to 25%, with a maximum of 30%.”

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