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How an upstart film production company lined up a credit line when virtually everyone else is struggling for loans
Not everyone is struggling to secure lending. While the financial crisis has left much of Corporate America scrambling to put together lines of credit, a little-known Los Angeles production company called Media Rights Capital has negotiated one of Hollywood's bigger financing deals recently, a $350 million revolving credit line.
But it wasn't always a sure thing. As insurance giant AIG (AIG) teetered and other banks sought mergers to avert collapse, MRC co-CEO Asif Satchu kept vigil, worried that one of his bankers would end up on the list of the fallen. "Maybe it was luck, maybe because we had a good group of banks," he says now. "But we kept them all."
Satchu certainly has more than luck on his side. His five-year-old company has eight films set to open in the coming year, and is producing 10 TV shows, including four for the CW Television Network, owned by CBS (CBS) and Time Warner (TWX). The three-year credit line, announced Sept. 22, gives Satchu, a onetime hedge fund manager, and his partner, former talent agent Mordecai Wiczyk, wide latitude in producing films, TV shows, and digital projects.
Steady Revenue Stream
Cobbling together a fund when banks are reining in lending is no mean feat. MGM spent much last of last year putting together a financing package. Steven Spielberg's new DreamWorks studio is now only syndicating a $750 million facility. MRC, launched in 2003, benefited at the outset from a solid equity base that lenders require, says Jeff Colvin, senior vice-president of Comerica Bank (CMA). The bank led the syndicate with JPMorgan Chase (JPM). MRC's investors include Goldman Sachs (GS), AT&T (T), and advertising giant WPP Group (WPP). More important, MRC has secured distribution outlets that give it a steady revenue stream necessary to repay its bankers, Colvin says.
Those distribution deals include one to effectively take over the CW's Sunday night schedule, giving MRC a guaranteed place for four of its shows. MRC sells ad time for those shows. The studio also has deals to create shows for Time Warner's HBO and Disney's (DIS) ABC. All of its shows are distributed overseas through British-based Shine Reveille International, founded by Rupert Murdoch's daughter Elisabeth. As for its films, Warner Bros. signed on earlier this year to distribute three, including one directed by Robert Rodriguez and another starring Cameron Diaz.
To get its deal done, MRC began negotiating with the banks only six weeks ago, just as Wall Street's malaise worsened. Presentations with the banks lasted three hours or longer, twice as long as usual, Satchu says. MRC also hustled to close the deal, accomplishing it in about five weeks, compared with the eight or nine weeks that such documentation usually takes. That was accomplished mostly because the 10 banks that came into the syndicate didn't back out.
Cash-Strapped Companies on the Market
The banks include Bank of America (BAC), Citibank (C), Royal Bank of Scotland (RBS), and Union Bank of California (UB). MRC isn't saying how much it cost to get the money, but Satchu acknowledged that the interest rate, pegged to the London interbank offered rate (LIBOR), was higher than it had to pay a year or so earlier. Other media execs have said the rate—for which banks were charging LIBOR plus 1.6% to 2% or so a year back—has increased to LIBOR plus roughly 2.75% for revolving credit facilities of the type MRC arranged.
What's next for MRC? Satchu says the company is starting to see a growing number of film and TV projects that can't get financed and that cash-strapped companies are on the market. Now that it's arranged a healthy line of credit, those are two fates MRC is likely to avoid.