Professional Documents
Culture Documents
SEGI
Highlights
Minimum Investment:
$1,000,000 CDN
Legal:
Ronald K. Sittler
ron@sittlerlawgroup.com
Tax Treatment:
Interest & Capital Gains
Returns:
15-20% preferred return
Term:
18-24 months
AN OPPORTUNITY
CREATED BY AN INDUSTRY
& AN ECONOMY IN FLUX
The global credit crisis and amendments in US accounting laws have
resulted in significant changes to film financing structures, creating an
industry void and an unprecedented opportunity.
The film industry is traditionally inversely related to economic decline. In
other words, the industry grows during recessionary periods. As such,
many private equity firms, hedge funds and institutions continue to invest
billions of dollars in the production of quality independent feature films.
At the same time, a change in the generally accepted accounting principles
("GAAP") for P&A expenses has prompted the major studios to drastically
reduce or eliminate P&A budgets for independent movies.
This unique convergence of events (global recession and GAAP accounting
changes) has created a significant demand for P&A financing for independent
films. At present, many high quality independently financed films are awaiting
release due to inadequate P&A funding.
an industry voidand an
unprecedented opportunity.
OBJECTIVES, STRATEGY
DUE DILIGENCE
AND SECURITY
Investment Objective
SEGI is a corporation that provides financing for marketing,
advertising and distribution costs of print and advertising for motion
pictures released by major studios and distributors. P&A loans provide
the funding required to create digital film projection reels and the
advertising necessary to attract viewers to theatres. Within this asset
class, P&A loans are generally structured as 'senior secured debt', a
class of debt that takes priority with respect to interest and principal
repayment over other classes of debt and/or equity.
Investment Strategy
SEGI provides financing for P&A for motion pictures in the North American marketplace,
released independently or in partnership with major studios and distributors. In return,
SEGI, through the respective Limited Partnerships/ S.P.V.s, receives first liens on the territorialcopyright and cash flows of the films they help finance. SEGI structures
its investments to indirectly earn loan interest, capital premiums, distribution fees
and ongoing interest in the revenues of each motion picture, creating a diversified
portfolio of revenue-generating media assets.
Loan Security
The P&A loans are generally secured by the film's revenues and all film rights
(theatrical, DVD, TV, pay TV, unsold territories, etc.) The P&A lender will be
entitled to all revenues until repaid in full with interest. Until the loan and
interest are repaid, the producers of the film will not realize any profit. Once
the loan is retired with interest, the producers begin to share in the profit, and
SEGI expects to receive ongoing royalty participation from the film's
total revenue for up to 25 years.
Due Diligence
SEGIs business model is driven by the performance of P&A loans and
the fees generated for the distribution commitments. SEGI aims to
finance domestic P&A costs once each film has been underwritten in
accordance with our disciplined investment process. Our rigorous approach to
project selection is based largely on audience testing, analytics created from
track records of all essential elements in any given film genre, in addition to
proprietary metrics based on opening weekends and competitive analysis. The
due diligence on each film will identify whether or not the film can garner box
office and downstream revenues that are capable of repaying the entire P&A
loan, interest and fees. The due diligence also takes into account the film's
ability to generate ongoing royalties once out of the theaters through DVD sales,
home video (VOD) and any other forms of distribution.