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COMPANY TOWN | REPORT FROM CANNES | THE BIZ / MARK
SAYLOR

No Day at the Beach as Bankers Reel and Deal at Film Festival

May 20, 1997|MARK SAYLOR

CANNES, France — John W. Miller, a managing director at Chase Securities Inc., stays at the luxurious Hotel du Cap, half an hour from the hustle of the film market in town. He meets with clients on a terrace overlooking the Mediterranean or visits company heads on their yachts.

He began coming to the festival 12 years ago and during that time has seen one movie there. With a shock of white hair atop a 6-foot-6-inch frame, he is elegant and relaxed.

Comparing himself with the other bankers visiting the festival, Miller said, "They make loans for films. We make loans to companies."

Lewis P. Horwitz of Imperial Bank stays on the Croisette and will make production loans for more than 50 films this year.

This was his 16th year at the festival. He has a SAG card and once played a flasher on the television show "Maude."

"I love this," he said. "I live vicariously through my clients. . . . I read a script last night, and I was crying."

Jack Valenti has described the Cannes International Film Festival, which wrapped up on Sunday, as "the great watering hole of the cinema world, and everybody parks their camel outside and sits down for a drink."

Among those parking their camels and drinking--along with the producers, actors, directors, distributors, exhibitors, lawyers, studio executives and jet-setters--are bankers, about 60 of them. They meet clients and troll for business or simply use the opportunity to understand how the international film business works.

The bankers include a large Los Angeles contingent--Steven Leibovitz of Comerica and Martha Henderson, Mary Yoel and Lawrence Da Silva of City National Bank--as well as such international bankers as loan broker Frans Afman, Rodney Payne of Coutts and Lars van 't Hoenderdaal of the Dutch bank De Nationale Investeringsbanks.

"We come primarily for contacts, not necessarily to do a deal," said Henderson, whose department specializes in private banking for high-net-worth entertainment business clients.

Miller and Horwitz, both of whom have been in entertainment lending for 27 years, represent polar opposites in the kind of business they do.

Yet both acknowledge a simple fact that explains why so many bankers come here. Film industry lending ranks as one of the most profitable areas of banking and, with the right understanding of the business, is extraordinarily safe.

Miller has loaned billions over the years, including to such failed companies as Cinergi, Savoy and Cannon. But he said he never lost money: "The industry is such that if you understand it, you can protect yourself always."

Since forming the Lewis Horwitz Organization, a division of Imperial, Horwitz said he has handled nearly $400 million in loans to hundreds of movies and had losses under a million.

In separate interviews Horwitz and Miller also used the same word to describe the current environment for entertainment lending: "dangerous."

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"I have a nice feeling I created this business," Horwitz said in an interview in the breakfast room of the Carlton Hotel. The town is swelled with independent filmmakers selling foreign rights to their films and then using those contracts to get a production loan from the bank.

"When I started, nobody would lend to the independents," Horwitz said. He said that he figured out that the value of underlying sales contracts could be packaged and be as safe as any collateral, as long as there was insurance that a film would be completed.

He describes the film business, the way he does it, as the "safest and most lucrative" area of banking, similar in many respects to real estate lending.

Horwitz works with hundreds of small players in the independent film business, not with the studios. When actress Sally Kellerman stops at the next table to chat with Bill Mechanic, chairman of the Fox studio, Horwitz asks, "Which one is Mechanic?"

"When I come to these markets, I talk with buyers and find out what's happening in their markets," Horwitz said. This year, the video business is down in most markets, while TV sales are up, which suggests a need for less violent product, he said.

Most independent movies can't fully cover their production costs based solely on foreign presales and need gap financing to bridge the difference. Horwitz said about 95% of the films he handles are gap financed, with the gaps covering 50% or more of the production costs in some cases.

With gap financing, the bank is at some risk if the movie that is produced is so terrible that it can't be sold. Horwitz said experience is crucial to knowing the producer and what kind of stars and creative talent are behind a film. In most cases, Horwitz is able to reliably estimate how much the film can earn at a minimum in unsold territories.

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