Bankers Look for Safer Ways to Back Films

With banks smarting from a series of Hollywood business casualties, independent producers have had a tough time finding film financing lately. Yet they’ve had no problem finding bankers at this year’s Cannes Film Festival.

Lenders from around the globe--many of them newcomers to the film world--have descended on this tiny Mediterranean town in surprising numbers. The hot topic of conversation: whether there’s a safe way to support movie making.

“We want to establish a presence in Hollywood, but up to now we’re not convinced that this works,” said Jean-Paul Dekerk of Krediet Bank Luxembourg, voicing the concerns of many of his colleagues here.

Dekerk and the others are being offered plenty of reassurance from cash-starved producers. The bankers were tutored in film finance at one seminar, then feted this week at a poolside gathering by the American Film Marketing Assn., a group that represents more than 100 independent production companies.

The first such party attracted only a handful of lenders three years ago. More than 50 bankers from about 20 banks joined in this year’s event.

“There are a lot of bankers just starting to look at the film industry, particularly in Europe,” said Jonas Rosenfield, AFMA’s president.

The bankers clearly enjoyed socializing with the film folk. As they stood in the noonday sun at the AFMA reception, some even loosened their ties. The private concern of producers, however, is that most of these bankers will leave Cannes with open minds but closed wallets.

The gloomy outlook was bolstered by the Hollywood Reporter, which bannered one of its Cannes editions with the headline: “Banks Slam Shut Their Vaults.” One banker, Hiroshi (Hank) Nozaki of LTCB Merchant Banking Group in Tokyo, admitted that he was more interested in “networking” with other bankers at Cannes than in doing deals. “Lending is very difficult now,” he said.

Bank loans to Hollywood independents dried up last year, when France’s Credit Lyonnais vacated its role as the independent film industry’s leading booster. Hits such as “City Slickers” and “Terminator 2: Judgment Day” were made with the bank’s support, but many of its clients ultimately collapsed.

The biggest case involved MGM, which fell under bank control after Italian financier Giancarlo Parretti defaulted on nearly $1 billion in loans.

Credit Lyonnais was nowhere to be found at the Cannes gathering. Neither were the major U.S. banks. Most of the participants were Europeans such as Adrian Scrope, director of a new company called Films. The London-based firm, which is backed by two German banks, is actively seeking projects to fund.

“Past losses were the result of sloppy lending,” Scrope said. “If you stick to the basics this is still a very good business.”

The prevailing wisdom among bankers is that their colleagues got into trouble by backing companies instead of specific pictures. Those companies were often built on rocky foundations. Project financing--where a bank lends against the advance fees a film generates--has been presented as a safer alternative.

Bankers are also seeking out more partnerships as a way to hedge their debts. Premila Hoon of Guiness Mahon & Co. in London, which had $70 million in film loans outstanding at its peak in 1990, said one of Cannes’ values is the opportunity for lenders to forge alliances within their own ranks.

Bankers must also overcome basic ignorance about the inner workings of the industry, said Bruce Lilliston, a Los Angeles film finance attorney.

“All these people are good bankers and they recognize that this is generally a good business,” said Lilliston, who is establishing his own finance pool with Peter Dekom, another Los Angeles lawyer. “But it’s not like backing a factory. You’re investing in people so there’s a long learning curve.”

Partnerships between experienced entertainment lenders and newcomers, such as the Europeans at Cannes, are already becoming more common. Veteran film financier Lewis P. Horowitz of Imperial Bank in Los Angeles recently entered into a co-financing agreement with Holland’s Credit du Nord.

The future may find even more alliances developing. Frans Afman, who pioneered lending to independent producers in the 1970s, said banks could eventually help producers find the distributors with the best business records, thereby increasing the chances that projects will be successful.

Said one attendee: “This can’t be any riskier than real estate.”