Union Patriot Capital

Banque Paribas opening vault to more film loans

Jul. 15, 1993

By Robert Marich

While the single-picture loan market is generally shrinking, Banque Paribas is raising its lending to the movie sector by 25 percent and, in a first, will make equity investments on a regular basis, according to banker Michael Mendelsohn.

The Century City division of Banque Paribas, which funded 36 English-language films over the past 2 1/2 years, has available funds of $250 million for 1993, up 25 percent from its prior allocation of $200 million. In 1989, Paribas authorized just $25 million for single-picture lending.

Mendelsohn, who is the French bank's vice president media-entertainment in charge of film and TV production financing, said in an interview that $160 million of last year's allocation was ultimately utilized for movie-TV loans.

With its emphasis on big-budget single-picture loans for independents, Paribas' Century City office is one of a handful of banks active in the battered independent-finance sector. Other leading big-budget, single-picture banks are the Los Angeles office of Daiwa Bank, ING Bank in the Netherlands, two European banks tied to loan broker F.I.L.M.S. Ltd. in London and, to a lesser extent, Credit Lyonnais Bank Nederland. Several years ago, CLBN had dominated the category.

Meanwhile, at Paribas, up to $25 million of this year's $250 million allocation can be used as equity funding, or merchant banking, said Mendelsohn. Such funding is a regular investment, unlike bank loans that set specific, although limited, repayment.

The bank is setting up a separate, off-balance sheet venture to manage its single-picture merchant banking activities.

''This will allow us to finance a picture that doesn't have any distribution contracts, although we would certainly plan to have distribution contracts in place eventually,'' said Mendelsohn, who has worked at the bank since 1989. ''This would be very similar to green-lighting a picture at a studio from a financial point of view'' in that a movie can go forward even when it's not fully pre-sold.

He said equity investment would be offered on a highly selective basis to existing bank clients and projects that have strong foreign appeal. Mendelsohn added that equity candidates would have to be well-developed projects because the bank would not advance seed money. ''We're not in the development game,'' he said.

Paribas will also acquire distribution rights to films for the bank's own account. Those rights, in turn, will be sublicensed by the bank to conventional foreign movie sales organizations for distribution.

Mendelsohn said the bank is willing to step into equity -- funding that is not promised a specific return such as a standard bank loan -- because of its good track record in movie lending and its ability to gauge movie values in overseas territories.

Earlier this year, Banque Paribas committed $20 million to a $100 million syndicated loan package to James Cameron's Lightstorm Entertainment, which recently decided not to use bank funds but instead rely on 20th Century Fox Pictures (HR 7/9). Mendelsohn said those funds are free for use elsewhere.

Mendelsohn is in charge of a five-person division in Century City, whose staff includes vice president Douglas Hansen. Mendelsohn, whose area is movie and TV production financing, works closely with David Burdge, who is Banque Paribas' senior vice president media-entertainment industry coordinator and is based in New York. Burdge's group lends to the additional areas of cable TV, satellite, publishing and broadcasting. Clients include Walt Disney Co., Viacom Inc., cable giant Tele-Communications Inc. and Time Warner.

Banque Paribas, with $200 billion in assets, was founded in 1872.

Among the 36 films recently financed through Mendelsohn's Century City division are Quentin Tarantino's ''Reservoir Dogs,'' Tony Scott's ''True Romance,'' Mel Brooks' ''Robin Hood: Men in Tights,'' Hexagon Films' ''Boiling Point'' and Russell Mulcahy-directed ''The Real McCoy'' produced by Martin Bregman and Willi Baer.

Mendelsohn is particularly active lending to clients of Hollywood talent agencies for film production financing outside the studio system. Single-picture lending generates high fee and interest-rate loans because of the risk involved when a well-financed major studio isn't involved as primary borrower.

Single-picture loans are at the same time attractive to banks because they liquidate quickly allowing capital to be redeployed frequently. The single-picture loans are scheduled to be paid off immediately by pre-sale contracts once a financed picture is delivered to distributors.