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TOPIC: Paramount forced to suspend $450m financing

Paramount forced to suspend $450m financing 14 Jul 2008 19:20 #19068

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By Matthew Garrahan in Los Angeles

Published: July 15 2008 00:12 | Last updated: July 15 2008 00:12

The credit crunch has hit home in Hollywood after Paramount Pictures, which has released a string of hit movies this year, was forced to suspend plans for a $450m film financing.

The studio has been working with Deutsche Bank on financing that would have provided funds for up to 30 films, including possible blockbusters such as the sequel to Transformers and a new version of Star Trek.

However, Deutsche has decided to close its film finance unit and concentrate on other areas. With the Paramount deal proving difficult to close because of a market-wide lack of enthusiasm for the senior debt component of the deal, the financing has effectively been left in limbo.

Although another bank may yet step in and rescue the package, Paramount is likely to have to put the deal on ice. Liquidity has dried up and although film slate deals can generate lucrative returns, potential lenders are steering clear of asset classes that are not triple A rated.

Both Paramount and Deutsche Bank declined to comment.

Under the Deutsche deal, which would have also covered Tropic Thunder, the new Ben Stiller comedy, and The Curious Case of Benjamin Button, which stars Brad Pitt, the syndicate assembled by the bank would have taken a 25 per cent stake in each of the 30 films.

But while the bank was able to assemble the equity and junior debt component, the credit freeze meant the bank could not generate interest in the deal’s senior debt component.

In the last few years Wall Street has beat a path to the door of Hollywood studios, with lenders and investors eager to share in the glamour and potential returns of the film industry.

With the cost of movie production spiralling, bringing in outside partners allows studios to offset the risk attached to making and distributing their film slates. However, as the credit crunch has started to bite, Wall Street has retreated with several banks, including Dresdner, moving out of film financing.

While Deutsche’s decision to close its film unit is a blow for Paramount, the films affected by the deal are still likely to be released as scheduled.

But if the studio fails to revive the deal with another bank it could force Paramount to seek funds from Viacom, the media conglomerate that owns the studio, to produce the titles. This would expose the company to greater financial risk if the films fail to perform as expected.
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