Miramax revives movie-backed securitization

Fri Nov 4, 2011 1:35pm EDT

by Adam Tempkin

NEW YORK, Nov 4 (IFR) - Global capital markets may resemble a horror movie of late, but that has not stopped film studio Miramax from resurrecting a film-backed securitization technique.

The studio, founded by brothers Bob and Harvey Weinstein in 1979, is launching the first-ever US term securitization of a standalone film library next week, for about US$550m, to refinance its outstanding debt.

The deal will also securitize all cashflow from existing contracts associated with the licensing of those films. That includes cashflows from the movies' different distribution channels (television, digital, and DVD/BluRay), and all future sales associated with the unsold inventory related to the library -- in other words, all cashflows associated with their future licensing and distribution.

The library consists of well known existing films that were quite popular during their run, including "Pulp Fiction", "Good Will Hunting", "Reservoir Dogs", and "No Country for Old Men".

Miramax was acquired by Disney in 1993, but the Weinsteins left the company in 2005. Disney eventually considered the studio a non-core asset, and sold it to a holding company in 2010. Therefore, while most film libraries are embedded in major studios, this one is a standalone entity.

Barclays Capital, the structurer and arranger, is roadshowing the 144A deal across the US starting on Monday, according to market sources.

A NEW SPIN

Film-related securitization is certainly not a new concept, but previous US deals, including more recent privately placed conduit financings, have not looked quite like this.

Prior uses of structured finance technology in the film space have involved the future production of new films. In the past, cashflows would rely on the success or failure of either movies that were just released, or movies that were in queue to be produced -- quite a gamble for investors if a film didn't do well at the box office.

The most recent film-backed securitization to be completed was a US$975m ABS for Village Roadshow Films, which closed in August 2010. However, that deal was more of a hybrid, as it financed the projected cashflows from some existing films, some that were recently out of the box office, and some that are yet to be made.

A seminal US$1bn deal from Dreamworks in 2002 kicked off this film financing trend in the US. That transaction relied on movies that were already made, but they were brand new.

About two months after the movie release date, the financing would advance to investors against future film receipts and distribution rights, which were largely based on how much the movie made in the original box office.

After the Dreamworks deal, the technology started to be used to finance the production of new movies -- so-called "slate" financings.

Many of these used monoline wraps from Ambac or MBIA, so when the Triple A ratings on those companies disappeared in 2007 and 2008, the slate financings went south pretty quickly.

For example, a US$465m film-backed ABS for Marvel Studios, launched in September 2005, titled MVL Film Finance, was downgraded from Aaa to Baa3 by Moody's in early 2009. The ratings were subsequently withdrawn.

The Aaa class of a similar deal, Relativity Media Holdings I LLC 2007-1, was downgraded several times, and was lowered to Ba2 by Moody's this past June; the ratings were then withdrawn "for business reasons", the rating agency said in a press release. The US$375m deal was originally created to acquire an interest in future films to be produced by Sony Pictures Entertainment.

From a credit perspective, the Miramax transaction seems a lot safer: all of the movies have already been made and were quite successful. Moreover, the contracts to license the movies via various distribution channels for specific time periods are already in place. These time periods are known as availabilities, or "avails", within the film finance industry.

Moreover, monoline wraps for ABS do not exist anymore, so like other recent so-called operating-asset securitizations, the top grade on the Miramax deal will be in the low investment-grade range, typically either Triple B or Single A.

The deal uses the same construct as the famed "Bowie bonds" from 1997, which securitized future royalties.

While new in the US, the Miramax film-library offering may have a predecessor in Europe: In March 1998, Italian media group Cecchi Gori priced a ITL475bn film-library ABS for a catalog of 1,200 Italian films.

However, unlike Miramax, the Cecchi Gorri transaction wasn't a pure library deal; it was a multi-picture distribution financing, which included some library movies but some new films as well.

Additionally, the Italian deal was launched into a motion picture industry that was materially different than the one that exists today - i.e., before the advent of digital technology, Netflix, and Hulu.

(Adam Tempkin is a senior IFR analyst; Editing by Ciara Linnane)

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