(originally published 08/02/19)

When we launched FilmCabbage back in the spring of 2018, it's clear that we made some naive assumptions – our program offers tremendous benefits to filmmakers with basically no risk, so we assumed developing partnerships and funding movies would be pretty straightforward. But what we didn't consider carefully enough at that time is that most filmmakers don't understand the financial security measures used in high finance very well, and as a result were very reluctant to move forward.

In our lending program all funds sit in a 3rd party escrow until they are “drawn down” into the project. That goes for our 80% as well as our borrower's initial 20%. This is necessary for two reasons: (1) So that funds are disbursed only as required by the project's costs, and (2) To ensure that the borrower's initial funds remain completely “idle”; that they are never depleted or encumbered until after our 80% loan funds are disbursed. The borrower's initial 20% sit in the Trust/Escrow account of a recognized US law firm, but we always also put in place an additional financial guarantee to insure the safety and security of those funds. This is done at our cost and only for the peace of mind of the borrower.

In our long history of wholesale lending, the additional guarantee we used was a simple surety bond – the party holding the funds in escrow would already have surety policies covering any amounts they held in escrow, and the borrower was simply added as a “rider” to that policy. This offered a full insurance-based guarantee of the safety of their funds. In the wholesale space, everyone understands surety bonds and are very comfortable with them – but we found that filmmakers don't really know much about sureties, and they didn't like that coverage.

So we instead developed a new method to secure their 20% before it went to the escrow – a Financial Guarantee Bond. Under this method, a  “guarantor” (in this case, a multi-billion dollar investment trust) would set aside from their own trust assets an amount equal to the borrower's 20%, which was moved into a separate escrow account naming our borrower as the beneficiary.  They then formed a contract with the borrower called a “Financial Guarantee”; this stated that if for any reason their funds were not returned from the escrow, the Guarantor would replenish those funds from the amount they had set aside.  But.... the Investment Trust company we made these arrangements with is a private company and their financial statements are not publicly available, so there was limited due diligence that our clients could do on them. So with few exceptions, filmmakers didn't like that coverage either....

As a result we have now developed a process that offers an inarguable, iron-clad guarantee that any clients can be completely comfortable with. When the borrower's 20% goes to the escrow, it is fully and independently guaranteed by Brinks, G4S, Ferrari Group or Malca-Amit, the largest asset security/safekeeping companies in the world. In exactly the same manner as when they pick up cash from a bank in an armoured car, these companies assume "care and control" of the borrower's funds and issue them a SKR (SafeKeeping Receipt). This is a contract where they (the safekeeping company) assume full liability for that money and fully guarantee its safe return. This guarantee remains in place throughout the entire loan process – the borrower's funds are fully guaranteed until they are returned, in full. The SKR is set up before any money has to be moved anywhere, so all documentation regarding the security of the borrower's money is fully vetted and approved in advance. Our clients can always be 100% certain they are completely secure and guaranteed at all times before they pay any fees or escrow any funds.

Brinks and G4S are the two largest world class Security Houses on the planet (with Ferrari and Malac-Amit being smaller but equally trusted), and their entire business and reputation is based on their ability to safeguard any and all assets put under their protection. With this agreement and process in place, we can state authoritatively that we have in place the most iron clad guarantee possible for the security of client's initial 20% funds.

One last thought.... even the most cursory examination into these companies and the SKRs (Safekeeping Receipts) they use to secure assets will show that any greater security and financial guarantee for our clients is quite literally impossible. Any potential FilmCabbage client who will doubt this security need not apply. We have established these partnerships at great expense and effort, and since there is no more comprehensive or easily verifiable guarantee possible, we can't waste any further time on clients that doubt their reputation or ability to deliver on their guarantees.

(originally published 04/04/19)

When discussing our lending program with filmmakers, one of the frequent points of contention is the "drawdown schedule" - the way our funds are released to the borrower in monthly tranches instead of all at once.  It can take as few as 8 months to make the full amount available, but can take as long as 12 months.  Most film borrowers want all the money right away, or at least half as the first tranche.  That never happens in the FilmCabbage program, and there are a couple of reasons why. First, the slow release of funds across time is our only financial safeguard, since we are lending literally millions of dollars to every borrower.  If we set up a credit facility for a filmmaker for a $25M production and wired it all to them right away, it is only a matter of time before one decides that Fiji looks nice and vanishes with the money.  Releasing funds slowly as they are spent into the production (and oversight confirms that they are being spent appropriately) is our built-in protection from fraudulent borrowers. Secondly, when we lend to film production we make the highly risky assumption that the project will be successful, since our only collateral is the film itself.  To offset our risk, we obtain a surety bond to insure each of our individual loans.  The insurer then becomes the one shouldering all of the risk.  The risk assessment we have done to analyze your production is sent directly to them, and they use it to establish how fast they are comfortable with the funds going out.  The riskier the production, the slower the funds become available.  Solid, established filmmakers with a track record of success will be able to receive funds faster than less experienced filmmakers.  And though we advocate for the proposed drawdown suggested by the borrower, at the end of the day it is the insurer has the ultimate say the actual drawdown - as the owners of the risk, they have that right. Many producers have said that their completion guarantor requires them to have all the money on day one of production, or they will not bond it.  But FilmCabbage will be able to show them that we are contracted to provide our portion of the production budget, that we have already escrowed the full amount of the loan, and that the monthly tranches are already set up.  With nothing else guaranteeing our loan funds they have to work with those assurances, and most are able to. There are going to be cases, especially with newer filmmakers, where they simply cannot start production without the full amount (or the vast majority) being available.  We can still work with those projects, but only in a very specific way.  In those cases, the filmmaker can simply wait throughout the drawdown schedule until all funds are fully available.  If the money is made available across 10 months, you would simply wait until the 10 months had passed and the entire credit facility would then be available.  Since you hadn't actually drawn any of the funds across that period, there would be no principal in the field so you wouldn't be paying or accumulating any interest.  But then you could set up a transfer of the full amount as you need it, or transfer the full amount to the completion bonder's account for disbursement. FilmCabbage makes every attempt to get you the funds you need, when you need them.  But the release of funds over time (a 8 to 12 month period) is a hard and fast rule that every borrower must work within.

(originally published 03/22/19)

When we first started offering the FundingNet program directly to end-borrowers in the Film Industry we quickly found something that we hadn't expected - not a lot of indie filmmakers seem to understand what a term sheet is meant to accomplish. When we sent out one of our first term sheets to a production house, they sent back a "redline" version that looked like a murder scene..... In that instance, it quickly became clear that they (and their "entertainment attorney") were treating the term sheet as a formal loan contract, and they wanted every possible detail and legal stipulation to be included. But that is not what a term sheet is meant to do. Similar to a "letter of intent", a Term Sheet is simply a preliminary, non-binding document that defines the basic terms of a impending agreement, and is generally set up by the party making the offer. It summarizes the principal points necessary for the offer to be formally extended to enter into a contract. Once both parties have agreed to those major aspects of the deal, the Term Sheet will serve as a starting point to develop the more detailed, binding documents. A Term Sheet also has to walk the line between having too much detail and too little - if there is too little detail you may find that one or more key elements haven't been addressed that could cause the deal to fall through. Too much detail (as with that initial client mentioned earlier) will cause delays because it is like negotiating a final contract before you have ever established the general terms. The term sheet simply needs to cover the major elements of an offer. The more refined details can be hammered out by the legal teams when the deal gets to the contract stage. By making it too complicated, that early potential client of ours (and the lawyer they were working with) were trying to negotiate a final contract before we had even established the terms, and as result the deal was never able to get anywhere.

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