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Basic film and TV funding.
There are ways in funding your entertainment project, but these
are a few basic means.
Independent. This can range from a vast array of funders.
From a single person, a group of investors, insurance companies,
investments companies, Venture Capital companies, etc. All willing to invest in the entertainment
business. Finding Independents. Preparing
the funding package, a copyrighted outline
Negative pick up funding. Negative pick up financing is
best accomplished from acquiring a letter of intent (LOI ) from distributor
which need to be backed by a LOI from a film bonder/ film insurance
company and in most cases the LOI becomes the collateral for a loan with
the funder or lending institution. Most Negative funders are established film finance companies
and are with you weekly to make sure all is according
to plan and issue checks from the budget .. Neg's can be hard to get, but can give producers much more
ownership.
The basic requirements needed to close the Negative., deal are:
1. Form a corporation (see My
Incorporate) for producing the property with the main players.
2. Obtain letters of confirmation from bona fide and top producer(s)
and a director.
3. Obtain letters of confirmation from a bonding company.
4. Secure an agreement from a major motion picture distribution company,
approved by the lender.
Film Production Financing Guidelines
The guidelines for providing film financing vary depending on the project
and whether third parties are cash flowing part of the strike price for
the project. As a Bank is strictly a lender, it does not take any creative
risk in connection with a project; thus, repayment of the Bank's loan cannot
be tied or dependent on the project's commercial success. The sources of
repayment of the loan must be identified and quantified before the loan
is documented and production begins and must be sufficient to cover the
strike price, all loan fees and documentation costs, estimated interest
on the life of the loan, including a provision for events of force mature,
and the premium for a completion bond as well as any budget contingencies
called for by the bonding company. If third parties such as equity investors
are cash flowing a portion of the project budget, the amount of the loan
is adjusted accordingly. In all cases, the full amount of the bank's loan
must be adequately collateralized by firm payment obligations. Acceptable
collateral can include escrowed cash, marketable collateral held by the
bank in safekeeping, standby or commercial letters of credit from acceptable
financial institutions, and distribution or licensing agreements with minimum
guaranteed advances payable on or as a result of delivery by credit worthy
domestic or foreign sub distributors. Output deals are not acceptable. The
credit worthiness of some third party players may be enhanced by the use
of standby or commercial letters of credit from acceptable financial institutions.
A loan application package should include the following materials, as
applicable:
1. Resume of the producers and director.
2. Chain of title documentation showing ownership of the project script.
3. Breakdown of the project budget.
4. Weekly cash disbursement schedule to allow for calculation of expected
interest.
5. Copies of signed distribution contracts or license agreements for
minimum guaranteed advances, or a list of potential players interested in
the project.
6. Copies of any contracts with equity investors.
7. Name and telephone number of a contact officer at any financial institution
to be issuing standby or commercial letters of credit.
8. Description of marketable collateral, if any, to be pledged to secure
the loan.
9. Letter of intent to issue bond from completion bond company. More
on What Funders Require
For more information on obtaining a Completion Guaranty/ Film Bonding
or Event Insurance, E mail us at;
eaglegp@aol.com
Completion Guaranty / Film Bonding
Agreement Example
Private placements and stock offerings (IPO)
Other. Self funding or acquiring funding groups. See
Millionaires
list.
Film Funding: Gap and SuperGap
The terms Gap Financing and SuperGap financing have been getting
a lot of play lately. As these concepts are sometimes hard to
succinctly define, I was impressed by this pithy description
from the Wikipedia:
Gap/SuperGap Financing
In
motion pictures, Gap/Supergap financing is a form of
mezzanine debt financing where the producer wishes to
complete their film finance package by procuring a loan that
is secured against the film’s unsold territories and rights.
Most gap financiers will only lend against the value of unsold
foreign (non North American) rights, as domestic (North
American: USA & Canadian) rights are seen as a “performance”
risk, as opposed to more quantifiable risk that is the foreign
market. In short, this means that the foreign value of a film
can be ascertained by a Foreign Sales Company/Agent by
evaluating the blended value of the quality of the script, its
genre, cast, director, producer, as well as whether it has
theatrical distribution in the US from a
major film studio; all of this is taken into consideration
and applied against the historical and current market tastes,
trends, and needs of each foreign territory of country.
Surprisingly, this is fairly predictable to a certain degree
of certainty. Domestic distribution, on the other hand, is
very unpredictable and far from ever a sure thing (e.g. just
because a film has a big budget and a commercial genre and
cast, it could still be unwatchable and thus never receive a
theatrical or television release in the US, thus being
relegated to being a big budget, direct-to-video film.) So, in
as much as there can ever be any certainty in the
entertainment business, lending against foreign value
estimates is almost always going to be a much better bet than
banking on domestic success (comedies and urban films being
two notable exceptions: they’re referred to a “domestic
pieces” or “domestic plays”.)
True to its mezzanine nature, in the pecking order of
recoupment of investment, generally, gap (or supergap) loans
are subordinate to (recoup after) the senior/bank production
loan, but in turn, the gap/supergap loan will be senior to
(recoup before) equity financiers.
A gap loan becomes a supergap loan when it extends beyond
10-15% of 100% of the production loan required to shoot the
film (or in other words, when the percentage of the gap
required to complete the film’s financing package becomes
greater than a bank is willing to bear, which is traditionally
10-15%, but can sometime be a flat dollar threshold like
USD$1,000,000.)
Gap/Supergap lending is a very risky form of capital
investment and accordingly the fees and interest charged
reflect that level of risk. But at the same time it’s not
unlike buying a house: nobody pays 100% of the purchase price
with cash; they pay about 20% in cash and borrow the rest.
Supergap financing works by the same principal: put down
20-30% cash/equity and borrow the rest.
Over the years, because of the high risk nature, many
supergap companies have come and gone, but a few established
players have survived the ups and downs of the markets: Screen
Capital International is arguably the gold standard in the
industry, with Grosvenor Park, Blue Rider, Newmarket Capital,
and 120db also being significant “players” in the debt
financing space.
[All text is available under the terms of the
GNU Free Documentation License. (See
Copyrights for details.) ]
You can also find some useful reference books at the Writer’s
Store:
film funding
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Also see:
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