While the recent big-money moves for Legendary and Summit clearly signal that commercial banks are returning to Hollywood, lenders are still approaching the movie business as a whole with a higher degree of caution, scrutinizing projects more carefully and favoring those with collateral behind them.
Legendary’s pitch for as much as $900 million in fresh funding, first reported Friday by Variety, and Summit’s ballpark $750 million injection in March are the kind of big-bucks arrangements with institutional lenders that would have been nearly impossible last year. “Even as recently as six months ago, banks and credit officers in banks were looking for reasons to say ‘no,'” Clint Kisker, director of Screen Capital Intl., told Variety. “I think the mindset now is that they’re starting to look for reasons to say ‘yes.'”
Between 2009 and late 2010, producers were hard-pressed to come up with bank financing for their films. A combination of the financial meltdown and unrecouped billions in the indie world spurred lenders into retreat. Now, the credit markets are loosening up, and some banks — including UBS, Wells Fargo and SunTrust — have even revamped or created new entertainment divisions to get in the game.
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“You’re starting to see certain banks be more aggressive with the pricing,” Kisker said. “What that means is that more banks are competing and producers win.”
Producer Brian Oliver, who recently secured financing through Comerica Bank for the Ryan Gosling drama “Ides of March,” has already benefited.
“It was definitely who we wanted to go with, not who we could get,” Oliver says of his Comerica deal. “There aren’t just two places to do your senior bank loans now.”
That doesn’t mean lenders are giving away money easily.
Banks are looking for well-collateralized investments, meaning many are doing business differently than they were just a few years ago. For producers working outside the studio distribution system, banks want to lend against money already in hand, such as foreign presale contracts or secured tax incentives. And for now, gap lending — leveraging unsold rights — is still in deep freeze.
“Banks do not want to depend on box office results,” said Christa Thomas, managing director and senior film adviser at SunTrust’s private wealth management sports and entertainment specialty group. “A lender is going to want to see a well-thought-out and contractual distribution arrangement for the film or films … They want to know there is a date certain and a source certain from which they will be repaid.”
Thomas said lenders also want to see fairly normal credit markers like good, experienced management and a proven track record. But, she added, they also want to see producers who will take a risk with their own coin.
“They’re going to look more favorably if the producer has skin in the game,” Thomas says, explaining that banks like to see someone below them in the capital structure that would take the first loss.
While banks might be willing to lend 80% to 100% against foreign presales, some more established film companies — think Lionsgate, New Regency and Legendary — can sometimes secure smaller loans against less secure but perceived-reliable sources of repayment.
“For the right borrower, banks will typically lend 70% to 80% against an ultimate,” Thomas says, referring to the “ultimate” amount, projected by a studio, that a film will gross. “If they lend against a library, it’s going to be 20% to 40%.”
But, while things may be on the upswing for filmmakers with a track record, times may still be tough for those working their way into that proven tier.
“An established producer (will) presumably have some contacts with banks,” Thomas says. “It’s very tough for somebody just starting out.”