There has been a fair amount of speculation since producer Robert Simonds, TPG Growth, Gigi Pritzker and Chinese concern Hony Capital announced their plans for “a next generation film studio” to finance, produce and self-distribute eight to 10 star-driven films every year. The group has already gone around the traditional business model in making deals for screen plays directly with the nation’s exhibitors and it will also make other output for home video, pay and other ancillaries. It also boldly announced that they would spend $1B over the next five years. When folks around town heard that, they rolled their eyes. After all, there is a history of largess announcements with Chinese investors only to find out later that it’s not real. So who better to confirm than with the bankers.
According to JP Morgan’s David Shaheen, the head of the financial institution’s entertainment banking team for the past 18 years, the deal is closed. “The funding is in place. We’ve been working with them for the past year and in earnest the last several months,” he said. “We were engaged from the beginning evaluating their business strategy and helped structure the financing. The combination of the equity capitalization that has been funded, the subordinated debt capital, the prints and advertising facility, and the senior debt revolving line of credit are sufficient to fund the production and releasing of film (and television content) for the term of the deal.” Which is? “Five to six years.” The prints and advertising facility is being handled by a separate company. But a billion dollars? “It’s fair to say that the capital is there,” says Shaheen. The Raine Group also served as the financial adviser to the studio.
Shaheen added that he was impressed with “the quality of the shareholders — all blue-chip players — including their exhibition partners and how they were able to pull the ingredients together. The capital is in place and ready to go. I’ve gotten some calls on this, too, from people around town wondering if this was real. I don’t know what else to tell you but it’s real.” It’s basically a revolver financial structure, which means that they can tap into larger resources if needed.
Also, the exhibitors — AMC Theaters, Regal Entertainment Group, Cinemark and Carmike — have all negotiated separately with the joint venture. In order to agree, they also needed assurance, which was provided. They all put a conditionality on the agreement that they had to see the capital to produce the films before they would make an agreement to offer them a certain amount of screens each year. By making deals directly with the theater owners, it is a major shift away from the traditional way of doing business with exhibition. (more…)