Monday, April 05, 2010

Exotic Movie Financing

We’ve mentioned before the various funding methods that we see or hear about in the business of financing movies. There are probably more people out there peddling “structures” than there are movies made every year, and almost every conversation about movie finance at some point turns to some structure or other. It’s becoming more common for producers to get hold of Standby Letters of Credit issued by an investor’s bank, which can then be used as asset-based finance for movies. SBLC’s are highly legitimate instruments issued by banks traditionally to finance international trading transactions, and can be creatively incorporated into movie finance. We know a couple of groups who make a “bread and butter” business out of helping people monetise these instruments to get the cash needed to make movies.

Of course a lot of transactions get proposed which aren’t as legitimate, some promising great returns along the way via so-called trading programs around the underlying assets. Whether or not these programs actually work is another matter, but a lot of talk goes into the subject among layers of people, and rarely do the actual deal principals come to the table. Rightly so, many people are wary of dealing with intermediaries and groups that don’t make their identity known. However, it’s a tough job getting movies financed and producers are always eager to explore all likely options.

We’ve seen as many dead ends as most folks. Just this week, for example, we were introduced to one deal where, for 5% down we could finance 100% of a slate of movies. And another proposal where a $10 million investment would realise $300 million within two years . . . Maybe so, but in general we like to work with just a few people we know and trust. We can help arrange finance for well presented movie projects that can bring around 20%-30% of their budget to the table in cash or equivalent. With that sort of leverage we can source the remainder of the budget and give the producers a great back-end that’s fair to all parties. Things are flexible but the first slice does need to be there, and that’s the rub. Everything changes but plus ca change: you always need some initial equity in place to get a real deal done, so producers still need to get out there and raise some faith capital to get their ball rolling. But the good news is that there are deals available for those who do.

On the other side of the deal there’s a great opportunity for investors to participate in movies, or slates of movies, with a sensible and transparent financial structure to give both parties some protection and reward. Many people would like to invest into the movie sector but are wary of the risks: we agree entirely, but we believe that the more transparent you can make the deal, the better the outcome for all concerned.

The Out Of Obscurity team.

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