Film and television programs are expensive and time consuming to produce. Their creators often work for many years before they are successful in bringing all of the pieces together. Once that stage is reached, many producers choose to secure interim or bridge financing to see them through the production process.
An interim or bridge financier in the entertainment industry fulfills the role which the name suggests; it provides interim financing only. This means that in order to be eligible for interim financing, a producer must normally have in place all financing sources necessary to complete the project. These sources include pre-sale agreements with broadcasters and distributors, written commitments from federal, provincial and private funding sources and agencies and eligibility for Provincial and Federal Tax Credits.
What Will You Need?
Before an interim financier will consider your project, you will be required to present a detailed cash flow, project budget, detailed calculations of estimated Provincial and Federal Tax Credits and copies of contracts or agreements with various parties including broadcasters, distributors and equity participants. This information is necessary to enable your financier to assess the bankability of your project. It provides the assurance that you have in place sources of revenue or investment sufficient to repay in full the bridge financing and complete production. Part of the security given for the repayment of the bridge financing is an assignment of each of these sources of funds.
Errors & Omissions Insurance
One of the requirements usually imposed by interim financiers is errors & omissions insurance. This insurance provides protection against various claims including copyright and trade-mark infringement, invasion of privacy and defamation. The coverage is expensive, but is essential as most financiers, broadcasters, and distributors will not participate in your project unless it is in place. These parties will be named insured on the policy. The coverage is also essential to protect you as the producer of the project.
Occasionally, interim financiers will advance funds before the long form contract has been issued; however, this decision usually depends on the financiers’ relationship with the producer and previous experience with the third party who is advancing funds.
A completion guarantee or bond is a requirement often imposed by interim financiers, broadcasters, and distributors. Most interim financiers have a list of the companies which they will accept as completion guarantors.
The terms and conditions of the completion guarantee ensure that your project will be completed and delivered even if difficulties are encountered during the course of production. For obvious reasons, the various participants in your project will require this form of comfort before advancing funds.
Commitment Letters and Long Form Contracts
As is noted above, your interim financier will require written commitments from all federal, provincial and private funding sources and agencies, as well as from all of your broadcasters and distributors. Most of these parties issue short form commitment letters and, later, longer form contracts.
Commitment letters usually contain expiry dates, and often include conditions which must be met before the long form contract will be issued and funds will flow.
The contracts with your funding sources, broadcasters, and distributors will, in all probability, provide for payment by installments. Usually, the advance of installments is linked to various stages of production. Most interim financiers will encourage you to allow a margin for delay in receiving those payments. In the past, the margin has usually been several weeks; however, in recent years, some financiers have encouraged their borrowers to allow an even longer margin. If you fail to take the delays in receiving installment payments into account, your cash flow will suffer; this, in turn, puts additional strain on the production as well as you as the producer.
In order to provide the interim financier with the security which it requires to advance funds, the producer will, in all probability, be required to sign a large number of security documents. These usually include documents creating a secured interest over all of the production company’s assets, assignments of monies payable under various contracts with broadcasters, distributors and equity participants, assignments of federal and provincial tax credits, a copyright mortgage, a power of attorney and, generally, a guarantee signed by the individual producer and/or parent firm of the production company. The financier may also require consent to make inquiries of various third parties with respect to the project. The documentation is broad and far reaching, but is intended to provide the interim financier with the security necessary to ensure repayment of the debt in the event that any difficulties arise.
Advance of Funds
In most locations throughout Canada, bridge financing funds are advanced to the producer on a periodic basis. Advances are made after the financier has received certificates evidencing various stages of completion. In Atlantic Canada, however, the practice has been different. Usually, funds are made available on a revolving line of credit. The advances, therefore, are similar in effect to an overdraft on the account. The financier establishes reserves for interest over the life of the loan, and carefully monitors the balance remaining to be paid on each of the contracts and agreements which were assigned.
Ordinarily, interim financiers will advance only a percentage of the funds payable to you by each of the funding sources referred to above. At any time, there are always a number of broadcasters, distributors and other funding agencies which refuse to acknowledge and agree to be bound by the terms and conditions of the assignments to interim financiers. This refusal may result in the interim financier refusing to make any funds available to you.
Meeting the requirements imposed by your interim financier may seem daunting; however, once the loan has been arranged, the advance of funds by the financier will make your job as the producer much easier. It will allow you to focus your attentions on your project rather than the advance of funds by the various funding sources.
Copyright: September 2010
This Lawletter has been provided for general reference only. For advice on an actual matter, you should consult a lawyer.
For further information please an Entertainment Lawyer:
Christene H. Hirschfeld, KC, Tel: (902) 460-3413