Relativity and Summit are making headlines with high-profile financing deals, giving hope to the film-finance sector.
After Relativity’s round of funding announced last week, on Tuesday Summit closed a deal with JPMorgan and UBS which includes about $550 million of institutional money and a $200 million revolving line of credit, which it plans to use to pay down existing commitments from the $1 billion in debt and equity raised four years ago at launch.
While it appears that coin is starting to flow again for more commercial projects, institutional lenders have taken up some of the slack left by the exodus of banks.
Slate deals financed by commercial banks, sometimes encompassing as many as 30-60 films, are rare these days in part because they inherently expose lenders to more risk.
“Out of a slate of 50 movies, 25 may lose money, 10 may break even and 15 will be profitable. If those losers offset the winners, everyone is in trouble,” said Charles Heaphy, senior VP with City National Bank’s entertainment division. Heaphy will be speaking at Film Finance Forum West — presented today at the Universal Hilton by Winston Baker in association with Variety.
Banks are not “in an environment where they’re willing to accept that (level of risk), and I don’t know if they ever will be again. We call (slate deals) ‘structures of of the past,'” he said.
Christa Thomas, managing director and senior film adviser at SunTrust’s private wealth management sports and entertainment specialty group, echoes that sentiment.
“I don’t think you’re going to see slate deals returning to the bank market any time soon,” she said. “Studios are probably going to struggle a bit to find financing on anything like the type of deals they got done before.”
Thomas said a large amount of money is now coming not from commercial banks but from institutional lenders — Wall Street heavyweights and other investment entities — as commercial banks slowly re-enter the financing market.
Summit’s financing deal with JPMorgan and UBS, which closed Tuesday, includes about $550 million of institutional money and a $200 million revolving line of credit, which it plans to use to pay down existing commitments from the $1 billion in debt and equity raised four years ago at launch.
Lending money as the market is coming back carries an advantage. A decade ago, for example, much of the data being used to make deals related to homevideo showed that those numbers were growing, in some cases as much as 120%. The more recent declines in the DVD market meant that many lenders didn’t get repaid.
Coming out of a depressed marketplace, entities are lending money based on lower-than-normal figures.
“If you lend against numbers and the market takes a nosedive, by default you’ve lent against evaluations that are no longer applicable — just like the housing market,” Heaphy said. “You’re in a recovering, albeit still somewhat depressed market, and in three to five years it’s going to be better.”
Heaphy predicts that once the larger banks begin to re-enter the film financing arena, the smaller deals will follow.
“Banks have reverted to a more traditional, conservative credit approach,” said Clint Kisker, director of Screen Capitol Intl., who will also speak at the Film Finance Forum.
A big part of that conservative approach, according to Kisker and others, is having guaranteed methods of repayment in place. Gone are the days of gap loans, in which banks would lend money based on what sales agents projected a film was worth before it opened theatrically. Only a handful of banks, half the number of just a few years ago, will do gap loans now.
Two of the most important guarantees that banks want to see are foreign pre-sales and a tax component, such as incentives, Kisker said.
(Dave McNary contributed to this report.)