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

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.

Although it can be risky, gap financing is also relatively lucrative: Higher risk equals higher rates. Seeing this, other financiers are entering the business. To stay ahead of the pack and free Horwitz from some of the legal restrictions he’s under as part of a larger bank, Imperial plans to spin off the Lewis Horwitz Organization (along with small-business and trust divisions) later this year as a separate public entity.

On a basic production loan, Horwitz charges interest of about 8 to 10%, with an origination fee of 1 to 3 points. For the gap, fees could be 7 points or more.

How does he avoid disaster in a business known for charlatans whose greatest talent is creating illusion?

Horwitz said experience is everything. “I can tell very quickly, based on how they talk and what they say. You have to take some losses to get to this point. I’ve had everything you can imagine happen, including people stealing.”

When things go wrong, Horwitz said you have to jump on problems right away. “I try to be the nicest guy in the world, the most honorable guy, I tell my clients,” Horwitz said. “But screw me and I’ll spend my life making you miserable.”

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Miller said that when he’s lending to a company, often to cover a slate of movies or to capitalize a company, “I always make assumption that every deal will go bad. . . . There’s a particular danger now, just as there was in the early ‘80s with lots of banks competing for business. There’s pressure on pricing, and banks will do dumb things.”

When that happens, many banks will flee the business, Miller said, but not Chase, which “has been in the entertainment business for 50-plus years and hasn’t backed out.” (The entertainment background actually stems from Chemical Bank, which merged two years ago with Chase.)

Clark Hallren, one of seven people working in the Chase entertainment group, joined Miller in Cannes this year and noted, “All we do every day is think about film and TV . . . most bankers do film in the morning and a railroad at night.”

Banks want to get into the business, Miller said, because “the yield is still relatively high . . . and let’s face it, it’s glamorous.”

During an interview with Miller last week on the terrace of the Hotel du Cap, actor Bruce Willis walked by, followed by his agent, William Morris President Arnold Rifkin. Also wandering by were attorney Jake Bloom and Sony Pictures Chairman John Calley. All were dressed casually, including Miller, wearing a blue checked shirt and Topsiders without socks.

Miller, 51, said he has to be at Cannes every year.

“It’s an endorsement of our commitment to the business of our clients. We do learn trends, but the real value is running into people,” Miller said. “One year, I sat down with [Disney studio Chairman] Joe Roth for a long chat.”

“My clients kept telling me ‘the only way you’ll understand my business and the foreign markets is to go to Cannes,’ ” Miller said. “Until I started coming, I didn’t understand the international market.”

Few of the dozens of bankers visiting Cannes stay at the du Cap, but as Miller points out, he has few competitors in making loans of more than $100 million to entertainment companies.

“Chase is the Good Housekeeping seal of approval” for entertainment banking, Miller said, noting that he also meets with many banking partners from around the world who share in deals originated by Chase.

As far as judging the quality of the movies produced by his clients, Miller said he doesn’t give it a thought. “We’re bankers, not script readers.”

He said he moved to the Hotel du Cap about four years ago because “all our clients are here . . . it’s far more productive for what we’re doing.”

Now he said he can’t stand to be in town. “It’s exhausting. So much of it is hype and baloney.”

Hallren, 35, admitted that it was odd to “fly halfway around the world to meet with people who we could see in Los Angeles.” But he and Miller noted that they couldn’t not come.

Miller said he skipped it one year and regretted it because his competitors pointed to his absence as a sign that he wasn’t committed to the film business. “The fact of not coming is 10 times worse than the cost of coming,” he said.