‘King’ of Indie Film Finance Plans to Go Independent

Sitting in his Century City office, Lew Horwitz doesn’t need coaxing to perform some sleight of hand. He’s a master of card tricks, and can turn a $2 bill into two $1 bills before your eyes.

Horwitz knows he is asking for trouble but can’t resist. In a business that’s seen plenty of houses of cards and funny money, Horwitz, 63, is considered by fellow bankers and industry insiders to be the king of independent film finance.

“Invariably, someone makes a joke,” Horwitz said. “A filmmaker’s attorney will say, ‘Watch the way Lew does that with your interest.’ . . . People remember me by it. They call me the Magic Banker.”

After 28 years in the business, Horwitz is known as a reliable, experienced banker who pioneered film financing when no one else could--and has inspired a number of competitors.

If all goes according to plan, the Lewis Horwitz Organization soon will spin off from Los Angeles-based Imperial Bancorp, becoming a separate, $300-million company.

The spinoff would free Horwitz from some banking restrictions, such as not being able to make equity investments. The proposal has gained approval from the Federal Deposit Insurance Corp. The Securities and Exchange Commission and the IRS are expected to give their OKs soon. Robert Franko, president of Imperial Entertainment Industries Group, says the transition should also allow Imperial to court other business, including private banking for wealthy clients, through Horwitz’s contacts.

Other bankers, like John Miller of Chase Securities (one of the rare bankers to have been in the field as long as Horwitz), have lent more money to the entertainment industry. But according to Franko, Horwitz’s outfit is the world’s largest lender to filmmakers by volume of transactions.

“He really understands the business,” said producer Arnold Kopelson, who got his first Hollywood loan from Horwitz in 1975 before going on to produce such hits as “The Fugitive” and “Seven.” “He has integrity . . . he honestly tries to help,” said Kopelson. “Plus, he’s been around and he’s so personable.”

Wherever filmmakers congregate, Horwitz is there, schmoozing and drumming up business. He attends the Cannes International Film Festival every year; he’s active in the American Film Marketing Assn., which stages Los Angeles’ American Film Market.

Success engenders imitation, and a good deal of money is now flowing into independent filmmaking. Just in the last six months, Banco Popular of Puerto Rico and California United Bank have joined the AFMA-affiliated lending institutions, which now number 18.

With the higher risk of lending against a single movie rather than a library or a “slate” of films comes higher interest rates--typically 8% to 10% for a straight production loan, more for “gap” financing that is unsecured by foreign pre-sales. Horwitz says he has lent $400 million and has had to write off less than $1 million in losses. But it can be tricky.

Heady prices were paid for a number of independent films at the recent Sundance Film Festival, but many more go begging for distribution--or fizzle at the box office. Horwitz thinks a shakeout in film financing is inevitable.

“A lot of movies were made last year that should not have been made. Bankers [without long experience in film finance] saw an opportunity to make money and financed pictures that couldn’t compete,” Horwitz said.

Lending to “Titanic”-size productions would quickly wipe out a $300-million fund. Horwitz specializes in lending to low-budget productions. Higher-profile projects he’s lent to in recent years include Oliver Stone’s “U-Turn” and “The Quest” with Jean-Claude Van Damme.

Surrounded by autographed photos of celebrities whose projects he helped finance (Mary Tyler Moore, Bob Newhart, Anthony Hopkins), Horwitz recalls his entrance into the field while working at Beverly Hills National Bank in the late ‘60s.

“My offices were on Wilshire Boulevard, and just by virtue of our location, we got a lot of entertainment people banking with us,” said Horwitz. “First Bank of Boston and BofA would lend to the studios only. They didn’t know what a deal memo was,” he said, referring to the written agreement that a studio or network gives to a producer that is essentially as good as a contract.

Horwitz convinced Beverly Hills National to lend to an actress against just such a deal memo, thereby helping launch the hugely successful “Mary Tyler Moore Show” and the star’s MTM production company.

Dozens of deals later, Beverly Hills National was bought by Wells Fargo, and Horwitz went to First Los Angeles Bank. By then, TV producers and filmmakers knew to come to Horwitz.

One area Horwitz withdrew from early on was music. “Disco and album-format radio killed the business,” recalled Horwitz, whose wall of photos features one of himself in full disco regalia (Qiana shirt, gold chain), alongside Donna “Love to Love You Baby” Summer.

In 1980, Horwitz founded the Lewis Horwitz Organization. Business was good, due to the burgeoning market for direct-to-video product. Today, booming foreign theatrical and television markets have kept business brisk.

Over his years of financing low-budget movies, Horwitz has collected numerous stories--so many that friends have urged him to write a book.

The first film his newly formed LHO financed 17 years ago was a $250,000 horror flick called “Dawn of the Mummy.” The plot involved several young models who go to Egypt on an assignment and encounter “a mummy and his terrible friends,” as Horwitz puts it.

When the filmmakers arrived in Egypt, they discovered that because of local customs, they couldn’t have the models get naked before getting killed--an essential plot device of the genre. One week into filming, the completion-bond company decided that the director was incompetent and removed him. He absconded with the first reel, leaving the producer to make do with the rough-cut reel.

Despite all that, Horwitz said, the film was delivered and his company eventually got its money back--though “it took a while.”

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‘Company Town: The Movie’

Movie financing has a reputation as one of the riskiest ventures around, but it can be both safe and lucrative for Lewis Horwitz and other bankers who understand the business. A typical movie loan period is 18 months.

* Step 1: Filmmakers approach Horwitz with a script for “Company Town, The Movie,” with some actors in place, and a detailed budget of $2.5 million. On the basis of these elements, the filmmakers have pre-sold rights for a total of $1.5 million to several large territories, often including Germany and Spain, payable upon delivery of the film. The filmmakers put up $500,000 themselves and ask Horwitz for a loan of $2 million to cover the production.

* Step 2: The $500,000 difference between pre-sales and the loan amount is called the gap. Based on the film’s elements and genre, Horwitz must analyze whether the remaining unsold territories are worth enough to cover the gap. He typically insists that the unsold rights be worth at least twice the gap.

* Step 3: The filmmakers must put in their own money first and pay for a completion guarantee, basically an insurance policy that assures the film will be finished. Only then will Horwitz start to fund the production. The loan works something like one for real estate construction in that the banker gets fees for a total loan amount that is only fully drawn down when the project is complete. He charges a premium on the gap portion of the loan and assesses interest on the amount borrowed.

* Step 4: When completed , the film is delivered to each territory for review to assure it is of the quality and type promised. Horwitz is paid directly by the distributors and gives the OK to release the picture.

Total time: 12 to 24 months.