Star Trek affected?
Paramount forced to suspend $450m financing
By Matthew Garrahan in Los Angeles

Published: July 15 2008 00:12 | Last updated: July 15 2008 01:28

The credit crunch has hit home in Hollywood after Paramount Pictures, which has released a string of hit movies this year, was forced to suspend plans for a $450m film financing.

The studio has been working with Deutsche Bank on financing that would have provided funds for up to 30 films, including possible blockbusters such as the sequel to Transformers and a new version of Star Trek.

However, the bank was unable to close the financing because of a market-wide lack of enthusiasm for the deal’s senior debt component. Deutsche has subsequently decided to close its film finance unit and concentrate on other areas.

A person familiar with the negotiations said Paramount had walked away from the agreement because the terms had become too onerous. ”The terms had become unattractive compared with alternative sources of financing available to Paramount,” he said.

Although another bank may yet step in and rescue the package Paramount is likely to have to put the financing on ice until credit markets stabilise. Liquidity has dried up and although film slate deals can generate lucrative returns, potential lenders are steering clear of asset classes that are not triple-A rated

Both Paramount and Deutsche Bank declined to comment.

Under the Deutsche deal, which would have also covered Tropic Thunder, the new Ben Stiller comedy, and The Curious Case of Benjamin Button, which stars Brad Pitt, the syndicate assembled by the bank would have taken a 25 per cent stake in each of the 30 films.

But while Deutsche was able to assemble the equity and junior debt component, the credit freeze meant the bank could not generate interest in the deal’s senior debt component

In the last few years Wall Street has beat a path to the door of Hollywood studios, with lenders and investors eager to share in the glamour and potential returns of the film industry.

With the cost of movie production spiralling, bringing in outside partners allows studios to offset the risk attached to making and distributing their film slates. However, as the credit crunch has started to bite, Wall Street has retreated with several banks, including Dresdner, moving out of film financing.

While Deutsche’s decision to close its film unit is a blow for Paramount, the films affected by the deal are still likely to be released as scheduled.

But if the studio fails to revive the deal with another bank it could force Paramount to seek funds from Viacom, the media conglomerate that owns the studio, to produce the titles. This would expose the company to greater financial risk if the films fail to perform as expected.

Copyright The Financial Times Limited 2008

http://www.ft.com/cms/s/0/4b3eea5c-51f9-11dd-a97c-000077b07658.html?nclick_check=1

Paramount is flatly denying any financing crisis detailed in tomorrow's Financial Times newspaper. My insiders at the studio are confirming that, yes, Paramount and Deutsche Bank did not make an overall deal for hundreds of millions of dollars as planned to underwrite future movies. But the studio maintains that it walked away from the final negotiation two weeks ago because the terms weren't acceptable and that, soon after, Deutsche Bank's film financing arm shuttered. So I've got to ask: how much of this is fallout from the current credit crunch, and how much is fallout from the nearly certain loss of DreamWorks by the end of this year? And is this financing critical to the continued smooth operation of the studio and its movie projects?

is insisting that nothing will change about the way it's doing business because the Deutsch Bank deal went south. "Viacom is zero upset about this," one source at the studio assures me, "It's much ado about nothing. All I know is that we're covered." That's because Paramount says individual partners like Spyglass, Level 1, Village Roadshow, and a small reincarnation of its former overall deal, Melrose II, as well as rival studios through co-productions are all helping finance its upcoming slate of films on a one-by-one basis. And the studio says it will continue doing that -- financing each pic with an outside partner or as a co-production -- until the current credit crunch eases. "We like those deals and economics much better. They're far stronger for us," an insider at the studio assures me. "We're very comfortable as is Viacom with our business plan. We've now laid off as much risk as we need to."

Paramount insiders even tell me that, for now and the immediate future, it will suspend looking for an overall financial partner until the credit crunch is over.

Here's what happened, according to my sources: Paramount's COO Frederick Huntsberry, CFO Mark Badagliacca, and SVP of capital management Mark Pinkerton had been negotiating for some time with Deutsche Bank's film financing arm, newly headed by top media and entertainment bank Laura Fazio who'd been hired away from Dresder Kleinwort a year ago to jumpstart what was considered a lagging division. What was being discussed was an overall deal for 30 films that only financed 25% of each movie and capped at $30M. It was, in the words of one Paramount exec to me, "Just a drop in the bucket." Also contributing equity and a portion of the mezzazine financing to the Deutsche Bank deal with Paramount was Qualia Capital, the bicoastal media and entertainment investment fund.)

Then, about a month ago, the trio came to Paramount bosses with a status report on the deal. And Brad Grey et al didn't like it. "It was not strong enough. It gave too much money away if the pics do well and not offset enough of the risk if the pics don't," an insider told me. "So we notified them two weeks ago that the deal didn't make any economic sense and there was no point to this. What we decided was to walk away. And having lost this piece of business, they shut the division down."

My sources stress that any characterization that the studio "lost" the financing is untrue. Which is why the studio finds the Financial Times story tomorrow misleading. But an outside-the-studio source told me over the weekend that the reason why no financial group is helping Paramount isn't just the credit crunch -- but also because the studio hasn't built up a good enough movie track record of its own. The Hollywood veteran told me: "Paramount doesn't have an equity financing deal because it lost the one it was making and has not been able to replace it because the studio's record is so bad." After all, if it hadn't been for DreamWorks, DreamWorks Animation, and now Marvel, and also Steven Spielberg, the Paramount balance sheet over the past 2 1/2 years would be a total disaster area. That is what the Financial Times report certainly hints at when it says:

"The credit crunch has hit home in Hollywood after Paramount Pictures, which has released a string of hit movies this year, was forced to suspend plans for a $450M film financing. The studio has been working with Deutsche Bank on financing that would have provided funds for up to 30 films, including possible blockbusters such as the sequel to Transformers and a new version of Star Trek. However, Deutsche has decided to close its film finance unit and concentrate on other areas. With the Paramount deal proving difficult to close because of a market-wide lack of enthusiasm for the senior debt component of the deal, the financing has effectively been left in limbo."

I first heard over the weekend this rumor that Paramount was having "financing problems" and that, specifically, it had "lost" its financing. Under normal circumstances, Paramount would have been able to replace Deutsche Bank with another source of financing fairly easily. But Deutsche Bank is only the latest financier to stop underwriting movies and close its film division. (Duetsche Bank let go Laura Fazio, plus others, after making a big fuss out of hiring her a year ago.) So there are less places for the studio to go, especially because of the current credit crunch. These financing deals are crucial not for a studio to survive but so a studio can mitigate its risk. That's why Fox has its Dune deal, Warner Bros has Legendary, Disney has Kingdom, both Sony and Universal have Relativity, United Artists supposedly has Merrill Lynch funding, and MGM is still looking for its financial partner.

Here are the deals that Paramount currently has in place: Level 1 is helping underwrite Star Trek, Spyglass is aiding G.I. Joe, Transformers II's deal is Melrose 2 (which financed the original pic and was given another crack at the sequel), and The Curious Case Of Benjamin Button is a co-production with Warner Bros. "So on all of our biggest movies over the next year we already had a partner," a Paramount insider tells me.

Of course, the timing of the Financial Times story is uncomfortable for Paramount because the studio bosses are winging to NYC for an LRP -- long range planning -- meeting with parent company Viacom where the studio will present its slate of pics through 2012. But, again, the studio is shaking off the headlines. As one insider put it to me, "Paramount has been around for 100 years. And it will be around for a very long time."

Sure, the studio has boasted about making $2 billion at the box office worldwide already in 2008. But the breakdown shows that the studio itself isn't necessarily responsible for that. Yet that's exactly why DreamWorks was purchased at the end of 2005 -- to get Paramount over the worst of its dry spell. And then DreamWorks proceeded to put Paramount at the top of studio box office share in 2006 and 2007 with a string of hits like Disturbia, Transformers, Norbit, etc.

So did DreamWorks Animation, which Paramount is distributing until 2010 and whose Kung Fu Panda is keeping Paramount competitive this summer even though the studio receives only distribution fees. Same story with Marvel's Iron Man, which gives Paramount box office boasting rights this summer but again only distribution fees. Even Paramount's fourth in the series, Indiana Jones And The Kingdom Of The Crystal Skull, comes with an asterisk because it's unclear how much worldwide gross the studio gets to keep after Steven Spielberg and George Lucas receive their massive payouts.

This reality is one reason why DreamWorks took out that clever but also churlish ad in Variety last Thursday congratulating Paramount's marketing and distribution for $1.6 billion in box office so far this year for Iron Man, Kung Fu Panda, and Indiana Jones 4. The point was to underscore that, without DreamWorks Animation, and Marvel, and Spielberg, Paramount's take would have been slim pickin's. And DreamWorks will be leaving soon, with David Geffen and Steven Spielberg out the door as well. DreamWorks Animation will be able to follow a year and a half later.

Of course DreamWorks will be leaving behind such franchises as Transformers, with the sequel just around the corner. But as I've reported, Paramount and DreamWorks don't see eye to eye when it comes to unravelling the two companies, especially what monies Spielberg can pocket according to the terms of his employment deal. Expect a battle royal.

All of the above may explain why there's uncertainty in the financial markets even beyond the current credit crunch about Paramount right now. But none of that takes into account the real likelihood that the studio has a profitable outlook on the horizon. In addition to Transformers, the studio can restart the Star Trek franchise under J.J. Abrams as well as begin a new franchise with G.I. Joe. All could be blockbusters. Or not. A the FT concluded: "But if the studio fails to revive the deal with another bank it could force Paramount to seek funds from Viacom, the media conglomerate that owns the studio, to produce the titles. This would expose the company to greater financial risk if the films fail to perform as expected."

http://www.deadlinehollywooddaily.com/oops-they-did-it-to-themselves-paramounts-financing-crisis/

I guess now we'll see the strings holding up the new Enterprise!

A non-story if ever there was one.

Or wasn't one, as the case may be.

I guess now we'll see the strings holding up the new Enterprise!

The actors will also have to make the "phaser firing" sound with their mouths to simulate the sound effect, a-la what we saw in TOS Trek's "I, Mudd" episode.

Not to mention that the transporters will utilize "Wayne's World"-type hand-waiving technology to transport people.

Or wasn't one, as the case may be.


Slow thinkers keep right. Let's see how important this is next week.

A non-story if ever there was one.

They said the same thing about Watergate.

They've been making these sweet-heart deals for years to break even, even if the movies stink. Maybe now they'll have to hire movie-makers instead of stock swindlers...er, specialists.

Slow thinkers keep right.

:confused:

Sorry if my opinion rubbed you the wrong way. It's really nothing personal.

You're taking this very personal. This is business and this man is taking it very, very personal.

They've been making these sweet-heart deals for years to break even, even if the movies stink. Maybe now they'll have to hire movie-makers instead of stock swindlers...er, specialists.I don't suppose there's any way they could persuade Robert Evans to come back . . . :cool:

They said the same thing about Watergate.

Watergate was pretty much a non-story, it just got blown WAY out of proportion by blood-smelling press sharks.

Watergate was pretty much a non-story, it just got blown WAY out of proportion by blood-smelling press sharks.


You are kidding aren't you? "Campaign fraud, political espionage and sabotage, illegal break-ins, improper tax audits, illegal wiretapping on a massive scale, and a secret slush fund laundered in Mexico to pay those who conducted these operations. This secret fund was also used as hush money to buy silence of the seven men who were indicted for the June 17 break-in". Then the President agrees to cover it all up and 5 people went to prison. Non story?

In other words, nothing any other politician hasn't done, without getting caught.

So getting caught was the big story. ;)

LOL @ the watergate bit... I have to agree about being what every other politician has done without getting caught :P (or what they'd all do if they thought they would get away with it)


back to my comment (before reading that)


[fanboy time!!!]

Maybe they will scrap the "new" Enterprise now in favor of the original (due to the budget cuts ;)


(no, I'm NOT really that naive.. but somebody had to say it :D )

So getting caught was the big story. ;)

Yup. :)

Yup. :)

Boy you guys are smart. I guess had they not been caught it wouldn't have made the news? You think so???

Boy you guys are smart. I guess had they not been caught it wouldn't have made the news? You think so???

Well, yeah, obviously. :)

Just as a side note, Nikki Finke's Deadline Hollywood Daily blog is about the only reliable reporting of what goes down in this town. The L.A. Times isn't up to her level of reporting, and the L.A. Daily News is fast becoming a joke of a newspaper.