Financing a film through bonds and commercial paper

[GeorgeSelinsky]

Greetings to all,

 

Has anyone ever considered sponsoring a film via issuing bonds and commercial paper? Everyone seems to always sponsor films via equity, but something with a fixed rate of return might be an option some might wish to consider (and certainly better than an adjustable rate credit card for the filmmaker!)

 

Given the instability of the stock market, a bond/paper issue could be enticing for some investors to consider at this point in time.

 

Granted, film is a very high risk venture, so it would stand to reason that any such bond/paper issue would have to be marketed along those lines.

 

I was curious, has anyone explored such a legal route? I mean, obviously we're talking an over the counter approach, not going through an underwriter. Would only a Series 7 licensed broker be able to solicit such a bond to an investor? I know, lawyer question, but maybe there's a finance nut like me out here :)

 

Thanks in advance for any suggestions and opinions...

[Jim Keller]

Granted, film is a very high risk venture, so it would stand to reason that any such bond/paper issue would have to be marketed along those lines.

 

You've hit on the problem right there. Film is a high-risk/high-return venture, and therefore not appropriate on the bond market. Remember that even the lowest-rated bonds have a payback schedule, and regular payments are made on those bonds as long as the company is in existence. If the company fails, those bondholders are in line to receive proceeds from the liquidation sale.

 

Film financing is much more akin to venture capital, where money is invested with no expectation of a regular repayment schedule, but where instead the venture capitalist receives a share of future profits. The greater risk is justified by the greater return if the company does well (they'll never make more on a bond than the bond's face value, even if the company recovers and goes gangbusters).

 

While it's conceivable that you could issue some sort of corporate bond to finance a film, that would really only work if you're an old and established company like Universal. Even if you could pull that off, you're likely to get a better deal by just putting the cost of production on your credit cards.

Edited October 22, 2008 by Jim Keller

[Paul Bruening]

May I ask, are you intending to make the paper available to an unlimited number of people? The problem with public paper is that it doesn't suit perishable product like movies. As well, it's not very well suited to such high risk investing.

 

The word, "bond" is more often associated with stable and continuous investments.

 

If you LLC your production, you'll get stock forms that you can sell to finance your movie. The cap on participation used to be 30 investors (that includes your shares). I don't know if that is still how it goes or if that number has changed. Even with this existing system for investing, you usually have to provide a contract to specify the terms. If you have to have a contract anyway, that is about all the device of investment control that you need. After all, stocks, bonds, and the like are actually just abbreviated manifestations of known contractual forms. They're faster than scripting a new contract for every investment. But, you see, movies are so wide open as a business, you really need a full contract to specify all the terms of financing, manufacturing, distribution, accounting, payback and yadda, yadda, yadda. The contract even has to define how the movie should fail if it does fail.

[pini kiso]

Hi,thanks for posting. Did you happened to solve yo prob bout this TS? By the way,this thread has been inactive for such a long time. Think this should be closed by now. Thanks!

 

Regards,

pinikiso

Placement financier