Just got back from New York where I participated in the opening panel of the Film Finance Summit. Heenan Blaikie uber attorney David Steinberg moderated the topic Intro and Overview of a TV & Film Transaction, with banking maven Lucie Guernsey, IP guru Jeff Sanders, and me.
We covered the basics of film finance, including the standard finance model of tax credits, presales, gap, and equity. I was pleased we got to spend time on security interests and essential elements; these are critical components of film finance closings. (See list below of related posts on some of these finance plan elements).
A security interest (otherwise known as a UCC filing) is when a lender puts a lien on your film (just like contractors can on your house). For example, if you borrow a bridge loan before your financing/bond closes, that lender will file a security interest so they have preferential rights to the assets of the film, including seizing property, should the loan not get paid back.
The senior lender, gap lender, tax credit lender, and equity investors will also have security interests, with preferential rights in roughly that same order. This is a critical component to a financier’s arsenal should they need to foreclose on the picture.
We also discussed essential elements. An essential element is usually when an actor, director, or other marquee name (like Peter Jackson on “District 9”) is so essential to the overall film package that buyers of pre-sold territories insist they can cancel the deal if that element does not live up to his or her obligation to the picture. If something should happen during production to an essential element such that they can no longer perform, it can be grounds for abandoning the film (if a suitable replacement can’t be found), causing the bond company to have to pay back all the investors.
In order to be approved as an essential element, that person must qualify for essential element insurance coverage, which is much more extensive and expensive than standard cast insurance (it’s more like a physical for a life insurance policy.) It’s surprising how many talent agents do not understand this process and are aghast that their client has to take a barrage of drug tests, which they don’t always pass.
We also discussed the plight of entertainment banks, now down to five. Unfortunately, another major lender is currently sitting in the cross hairs of possibly being scrapped (more on that in a follow-up post).
I wasn’t able to stay for other panels, so unfortunately I can’t comment on them. I believe the next Film Finance Summit will be in Toronto, where I may participate as well and be able to sit in on the other discussions.
Previous posts, referenced above and of interest to the topics discussed on the panel: