Halmi driving – banks locked in trunk

Almost two months ago, I tweeted about Robert Halmi International (RHI) Entertainment’s massive bankruptcy that took out US Bank’s entertainment division. Having had some time to think about it, I realize this path of destruction did not end with US Bank, but will continue through a slew of other banks that bought into the syndication of RHI’s loans. Ultimately, this wave could come crashing right through the front door of JP Morgan’s entertainment division.

My understanding is that RHI, which earns about $45m a year in revenue, has ended up over $400m in debt! This comes less than two years after their $189m IPO (the proceeds from which were supposed to pay-off their previous debt.) Now, as a result of the bankruptcy, they face delisting from the NASDAQ.

I’m not going to speculate about how RHI ended up $400m in debt, but I am going to speculate that there is a large deep-pocketed syndicate of banks who own significant pieces of RHI’s credit facility, which was originated by JP Morgan and syndicated out to numerous other banks, including US Bank.

Syndication typically occurs when a company wants a large credit facility from a bank. The bank, not wanting to carry that much debt (and risk) on their books, will get a bunch of other banks to buy pieces of that loan. Banks that aren’t sophisticated in entertainment lending will often buy into syndication deals because it helps to round-out their loan portfolios with some higher-risk media investments. Other entertainment banks will also buy in to subsidize deal flow (or offset their single-picture loan books.)

The bank that originates the loan gets a healthy fee for their work. This is big money, so all banks like to originate syndication deals. In the world of entertainment syndication deals, JP Morgan’s entertainment division is the undisputed master of the universe. They are the originators and epicenter of the vast majority of entertainment syndication deals, generating huge credit lines for Dreamworks, Lions Gate, Overture, and Sony’s purchase of MGM, in addition to RHI.

But with great power, comes great responsibility. Besides blessing these deals in the first place, JP Morgan was supposed to serve as steward of these loans — keeping a vigilant eye on the borrows, on behalf of their respective syndication networks. With RHI, however, somebody at JPM fell asleep at the wheel, causing the car to veer off the road, over a cliff, and into a fiery pit.

The logical extrapolation of all this is that these banks are not going to go down quietly and are probably gearing up for a massive law suit, which, if successful, could be significant enough to take-down JP Morgan’s entertainment division, too. That’s going to create quite a vacuum in the entertainment lending space, which has gone from 12 banks to six in just under two years.

I don’t see another institution filling that space because all the potential syndication buyers have been burned (or aren’t going to risk it a second time.)

What does this mean for the independent producer out on the street trying to get a movie financed? Without a syndication network, banks are going to have to carry more loans on their books, which means they won’t be able to do as many deals, and are going to be even more conservative in their lending practices.

Comerica, Union Bank, Pacific Mercantile, City National Bank, Bank Leumi, and National Bank of California are going to be spending a lot of time on the phone trying to convince each other that they should buy into each other’s loans, and vice-versa. What a mess.


  1. This brings me to the reason I came up with of why America and the rest of the world connected to America are in a deep recession: we spend tomorrow’s profits today. We allow our “wants” to drive us to spend large amounts of money on unproven ideas. The film business is the one business I believe has allowed itself to balloon its spending to the point of being totally ridiculous. For instance, a certain talent agency has played hardball with the studios to force the them to pay huge amounts of money for their actors and won’t let the studios sign on just an actor but director, writer, etc. -A whole package deal. That’s just one example. My point, before a film producer even considers looking at some sort of loan or even bringing on investors, they need to go line by line and ask the question: Do I REALLY need to spend this much money on this or that?

  2. What a mess indeed!

    However, from a medium to long-term perspective I’m optimistic that this is overall good for the business.

    There’s no denying that the demand for content is greater than it has ever been; but the definition of content is rapidly changing as are the means of delivering this content creating some important and significant opportunities.

    The tightening of credit and other funding sources as well as questions about current distribution practices will hopefully give us pause to reflect, analyze and forge new directions with better clarity.

  3. Thank you, Jeff. All business, but ours in particular, shall forego much of the waste due to ego, indecision & extravagance of the past. Your input details that reality well.

  4. Great post Jeff! What is even more disturbing is that RHI product has gone from 2.2M per MOW to 900K per MOW in less than 6 years as well. The number of shooting days on some RHI films are as low as 9 production days for a feature length film!

    Perhaps it’s the networks who buy these films that are not paying for the product delivered based on contracts that require a certain level of quality (I know this is what it is) and perhaps if the product was better and the crews were paid on time RHI and his gang would not be in such a mess.

    Perhaps 500K ATL is too much for a project that is only 900K?

    What I do know is that the guys he used to make films for (SYFY, HALLMARK, LIFETIME) are still going to need product so maybe this is a good thing. Maybe this is where the new Roger Corman steps forward and brings back the great low budget film.


  5. Ahhh, contagion. Great bit of journalism, Mr. Steele. I’m sure the Wall Street Journal isn’t far behind the story. Great blog. Glossary of finance terms would be cool.

  6. Great post. I am curious to the cause of the massive debt after the IPO.

    JP was a syndicate leader. Are we assuming there will be no further attempts at syndication from other players if JP goes down? The premise syndication was to mitigate risk so the burn was less severe. Even if JP is taken down, I bet there will be others who will step up. I’m pretty sure the remaining banks will quickly realize that concept of syndication is not flawed just the master of the syndicate. In any case, they will all have to up their sophistication to play in this game.

    The demand for product isn’t going away as long as there is a healthy appetite for new media, the capital will find its way to productions as long as there are returns to be realized.

    • There are at least 10 other banks in this 9-figures RHI syndicate. I don’t see any of their corporate parents allowing them to continue after taking such a loss, let along diving into the vacuum.

      • These are the banks that signed the Forbearance Agreement:

        The Royal Bank of Scotland PLC,
        JPMorgan Chase Bank, N.A.
        Manufacturers Bank
        California Bank & Trust
        BNP Paribas

  7. The RHI team has churned its film lib from one bankruptcy, Qintex , to over a billion and a half dollars of writedowns at CRWN and RHIE, to an IPO, to what looks like another bankruptcy. Same managment team.

    Maybe the bankers deserve to be shut down.

  8. “…somebody at JPM fell asleep at the wheel, causing the car to veer off the road, over a cliff, and into a fiery pit.”

    And that fiery pit is going to choke-off the indies with deep black smoke.

    By your estimates, RHI was looking at a $45m revenue stream and saddled themselves with +$400m in debt. You have got to be kidding me? And all this after an IPO which generated $189m? Lawsuits, yes, I see.

    I wonder if JPM was so busy with the other meltdowns in their grasps and the current economic issues, they weren’t watching the fires building under RHI?

    Does this galvanize the majors and their production financing resources and squeeze-out the minis and indies for the money fight? I sure hope not.

    As risky as this biz is, without competent institutional resources for financing production slates, I wonder how the indie world will react? Maybe increased equity funding?

    I can only surmise everything is going to get tight and maybe the strategies you talk about Jeff, with regards to alternate ways of finding/supporting financing (i.e. crowd/tribe funding, etc.), will become not options but ‘must tries.’

  9. While the Halmi’s seemingly let RHI/Hallmark become a sinking ship, they themselves were merrily sailing into the sunset on their brand new luxury yacht.

    Check out http://www.superyachttimes.com, and enter Miss Lisa into the search field.
    Boat was launched last September, and named after Robert Jr’s. third wife.
    Miss Lisa cost about $10 million to build, or roughly a quarter of RHI’s estimated annual revenue.

    With RHI swimming in so much debt, was this a responsible way for its management to be spending money?
    Talk about feeding unaware investors to the sharks…


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