The Lodestar Group Pitches Steve Bannon to Société Générale

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Presentation to Société Générale Regarding a Collateralized Production Loan Credit Facility
by Roland Sabot, John Stevens Sheldon, Eric Hirschfield of The Lodestar Group

Executive Summary of Newco

Newco will be formed by its management team and Bannon and Co. to provide short term Collateralized Production Loans (“CPL”‘s) to certain qualified major independent film production companies (i.e. Castle Rock, Morgan Creek, Baltimore Pictures).

CPL’s will be issued only against eligible distribution contracts from pre-approved U.S. and international distributors (Disney, Paramount, Fox etc. / Rank, Canal Plus, Rizzoli, Telemunchen).

Newco will originate on average two CPL’s per month, with an average loan balance of $20 million, to be outstanding for 270 days in total.

Each CPL will have two to four executed distribution contracts for a total balance in excess of the total CPL plus accrued interest.

Each CPL is self-liquidating pursuant to the distribution contract (payment in full at completion of film production) and insured by a completion bond from a rated insurance company guaranteeing that a film will be completed and delivered.

Newco would like to arrange an exclusive CPL facility in the amount of $200 million from a leading international bank from which it will originate individual CPL’s against acceptable distribution contracts.

Parameters of CPL Financing Facility

Amount: $200 million
Average Loan Size: $20 million
Average Loan Term: 270 days
Interest Rate: LIBOR + 150 to 300 Basis Points, paid at loan maturity.

Security:

  • Contractual Distribution Agreements from eligible firms
  • Letters of Credit for distributors as necessary.
  • Completion Bond guarantees.
  • Traditional project financing security protections (first priority security interests in the film, collection amounts, interparty agreements).
  • Significant down payments in certain instances.

Eligible Borrowers: Pre-approved list of major U.S. independent producers such as Morgan Creek, Castle Rock, Baltimore Pictures, Tribeca.

Eligible Projects:

  • Executed distribution agreements with approved distributors:
    • Domestic: Paramount, Disney, Fox and Sony
    • International: Canal Plus, Rizzoli, Telemunchen, Rank
  • Directors and producers experienced inside and out of major studios.
  • Major established acting talent only.

Facility Fee: To be determined.
Other Fees: To be determined.

Description of Newco

Formed by Current Management Team and Bannon and Co.:

  • Current Management has been very active in lending to independent film producers for four years from a major international bank. Current Management has closed over 20 transactions without a default.
  • Bannon and Co. consists of four individuals experienced in film production, investment banking and entertainment law, including three former Goldman Sachs investment bankers and one former entertainment attorney and studio executive.
  • Newco will utilize the CPL to lend to eligible borrowers at a spread of 100-200 basis points and charge a facility fee to be determined.
  • Equity ownership could include Société Générale or Lodestar if preferred.

Example of Individual Production Loan Project

  • Independent Film Producer signs contract to license North American distribution rights to Time Warner for $15 million and foreign distribution rights to Canal Plus for $10 million, for a film to be made by the Independent Film Producer over nine months.
  • Independent Film Producer obtains a Completion Bond from an accredited Completion Bond company assuring the completion of the film at expected cost on schedule.
  • Independent Film Producer obtains a Completion Bond from an accredited Completion Bond company assuring the completion of the film at expected cost on schedule.
  • Independent Film Producer contacts Newco with need to borrow $20 million for production costs. Production will take nine months.
  • Newco performs due diligence on the project for two to four weeks to determine credit worthiness. Newco turns away any project that does not fit the strict credit terms established by Société Générale and Newco.
  • Newco lends $20 million to Independent Film Producer at LIBOR plus 3%. Newco draws down $20 million from a Société Générale $200 million credit facility at LIBOR plus 1.50%.
  • Completion Bond company overseas daily production costs to ensure that the Independent Film Producer is on schedule and keeping costs within budget.
  • In nine months the film is completed and delivered to Time Warner and Canal Plus for distribution. The payments from Time Warner and Canal Plus flow directly to Newco and, in turn, to Société Générale pursuant to the financing agreements with the Independent Film Producer. The $20 million principal and accrued interest and fees of approximately $1.5 to $2.5 million are paid to Société Générale.

Risk Factors

A. Transaction Risks

  • Credit Risk
    • U.S. Distributors
    • Foreign Distributors
    • Banks
    • Completion Bond Companies
  • Completion Risk
    • Film Completion and Delivery to Distributors
  • Foreign Exchange Risk
    • Currency Fluctuation

B. Business Risks

  • Increasing Competition
    • If other sources of collateralized lending appear, profit margins (i.e., fees and interest spreads) could be pressured downward.
  • Market Consolidation
    • If the worldwide film distribution marketplace consolidates financing sources in the major studio distributors, a lessened demand for production lending could result.

Investment Considerations

  • Augment Société Générale’s U.S. credit presence by $200 million on a fully-collateralized basis.
  • An inefficient capital market, with historically price-insensitive fee structures and interest spreads.
  • A secure investment, with fully-collateralized use of funds for short-term film production lending secured by creditworthy payment guarantors and other mechanisms such as letters of credit.
  • Opportunity to lend short term funds and [sic] longer term rates with attractive security position
  • Opportunity for Société Générale to enter under-banked new business area of entertainment financing while exposing the bank to minimum credit risk.
  • A highly-regarded and much sought-after management team from a major international financial institution, one of the few such groups of professionals in the worldwide motion picture industry with an already-established dominant market share.
  • An “installed base” of business relationships brought by the management team, with little or no start-up inefficiencies.
  • A substantial growth opportunity in an industry becoming increasingly diverse in terms of film production financing sources, providing increasing opportunities for sources of collateralized short-term capital.
  • Business access to significant U.S. and foreign film studios and independent film producers on a regular basis offers potential for other lending and private placement opportunities for Société Générale.
  • Potential for cross-border strategic advisory assignments for Lodestar and Société Générale through relationship with Newco and the eligible independent film producers

Source: The Lodestar Group