Credit crunch hits $1bn MGM finance plan
By Matthew Garrahan in Los Angeles and James Politi in New York
Published: August 15 2007 22:02 | Last updated: August 15 2007 22:02
The credit crunch shaking world markets has hit Hollywood after Goldman Sachs and Deutsche Bank, which were trying to raise up to $1bn to finance films for Metro-Goldwyn-Mayer, withdrew their commitment to underwrite the deal. Bringing in private equity, hedge fund and institutional investors to fund “slates” of several films has become a popular way for Hollywood studios to spread the risk attached to production.
But with credit markets tightening, the attempt by the banks to raise $700m-$1bn for MGM productions and co-productions has been blown off-course, according to people close to the situation.
The financing would have provided funds for films including The Hobbit, an MGM co-production with New Line Entertainment, and the fourth instalment in the Terminator franchise. It is also likely that funds would have gone towards the next James Bond film, an MGM co-production with Sony.
Goldman declined to comment and Deutsche did not return calls. The financing has not been abandoned, however, with the banks believed to have moved from an underwriting commitment to a “best efforts” commitment to complete the financing.
But the underwriting withdrawal amid a broader credit crunch means the deal will be delayed. It is unclear when it will be revived.
MGM also declined to comment. However, the studio is understood to be relaxed about the delay because none of the films in line to receive funds from the financing is due to start production imminently.
MGM was sold to Texas Pacific Group, Providence Equity Partners, Sony and Comcast in 2004. The four shareholders bought the studio and its 4,000-title library from Kirk Kerkorian for $4.8bn.
Since the sale, MGM, under CEO Harry Sloan, has moved to a new business model, streamlining its operations and beefing up its distribution business, where it has deals with independent producers including The Weinstein Company. Mr Sloan has also revived the United Artists studio label, which is controlled by MGM, bringing in Tom Cruise and Paula Wagner, the film star’s production partner, to run the division. UA is close to securing $500m financing for its production slate. The deal is being arranged by Merrill Lynch.
Meanwhile, MGM is keen to boost its film library by producing a limited number of “tent-pole” movies each year. With the average cost of a Hollywood film close to $100m, the studio is keen to tap other sources for production funds.
Other studios, such as Warner Bros Entertainment and 20th Century Fox, have raised funds from private equity and hedge fund investors. More than $12bn has been committed to film financing projects in the last year, with investors attracted by deals that allow them to share in the success of films that perform well at the box office.
