Bonds put safety first

For US and UK independent producers and financiers, completion bonding — which provides a guarantee of financing on a film — is now second nature. “Part of our risk management is using a completion bond. It’s one of our investment criteria. If you’re financing independently and not a studio, I don’t think you should take the completion risk. So much can go wrong,” says Claudia Blümhuber of Zurich-based film financier and producer Silver Reel Partners, whose credits include Grace Of Monaco and Under The Skin.

Industry veteran Mark Damon, chairman and CEO of Los Angeles-based production and sales company Foresight Unlimited, points out: “To discount foreign sales contracts and convert them into production funds, you need to have a completion bond. No bank will go ahead and discount your contracts without having the guarantee that the film will be completed.”

Michael Barker, co-president and co-founder of Sony Pictures Classics, says: “Whenever we are involved with a film, we like to have it bonded. It makes a lot of sense for us. You can sleep well at night knowing a company like Film Finances is doing a completion bond.”

It is perhaps surprising, therefore, that in continental Europe and in Asia, there has been a wariness about film completion guarantees. Some producers resent investing 1.5%-2.5% of their budget on a completion bond in addition to their production insurance. A common refrain is that it is better to spend this money on screen, while there is also the fear an external force — such as a bonding company — might interfere on the film.

“We have been looking forward to the day when the French and Germans really want to incorporate completion guarantees as part of their regular way of financing films,” says James Shirras, joint managing director of Film Finances in London. “There is this idea in France that it’s an Anglo-Saxon idea that interferes with the unique and wonderful view of the director which, of course, isn’t true.”

Some argue it is precisely this auteur tradition that makes it important to bond. If you have a director who goes over schedule and over budget, the bonding company has the power to intervene.

And it seems more European productions are beginning to come round. “Spain is funding its movies based on assumptions of pre-sales in Latin America and the US, where Spanish horror films have proved successful. Local producers are increasingly going to be raising finance against pre-sales, which will then need to be guaranteed,” says Peter La Terriere, London office managing director of European Film Bonds (EFB), which has started a venture in Spain as well as working closely with German and French producers.

Meanwhile, the bonding companies are also making inroads into Asia. “There are a lot more pictures coming to us that are going to shoot in China with Chinese backing,” says Scott Nicolaides, ProSight Specialty Insurance’s executive director of media, bonds.

Making it work

The parts of a film most often bonded are the budget and finance. The bond company will not go ‘on risk’ — the point at which the bonder is responsible if the film is not completed — until the money is in the production account.

Typically, US studios will not bond unless there is independent finance involved. “When the studios do use us, they probably do not want us to take control of the project but want to be able to maintain a close relationship with the creative makers of the film,” suggests David Korda, joint managing director at Film Finances in London. “It is a good cop, bad cop routine, with the bond company acting as the heavy.”

It is rare for films that are bonded to run into trouble. Bond companies are meticulous in preparing against this possibility.

“It doesn’t matter who it is, it could be an Oscar-winning producer or director, but if we don’t think he or she can make the budget in those days, then we would ask them to review their plan,” says Nicolaides.

There are enough tales of woe to serve as warnings of what can happen when producers run out of money or fall out with each other. A famous example is Terry Gilliam’s The Man Who Killed Don Quixote, the troubled production that is chronicled in Keith Fulton and Louis Pepe’s documentary Lost In La Mancha. Don Quixote was bonded by Fred Milstein’s cineFinance.

Gilliam’s The Adventures Of Baron Munchausen was also a troubled production, bonded by Film Finances, budgeted at $23m but which reportedly cost twice that figure. Film Finances took one of its biggest ever hits but survived the setback.

Early in his career, UK producer Kevin Loader worked with cineFinance on English Civil War drama To Kill A King. “We started filming before the financing closed, which is something I’d never do again,” Loader recalls. “That film ended up effectively having to shut down and re-finance.”

Loader did not use a bond company on Roger Michell’s latest feature, Le Week-end. It was a small film and its financiers, the BFI, Curzon and Film4, had enough trust in the producer and director not to compel them to bond the project.

Speak to producers and many strike a remarkably enthusiastic note about their bonding companies.

“It is always film professionals you’re dealing with, not insurance people,” says Zentropa’s Peter Aalbaek Jensen, who has worked with EFB on several of Lars von Trier’s films including his latest, Nymphomaniac.

When you are working with a maverick talent like von Trier, says EFB’s CEO and co-founder Per Neumann, allowances can be made, as long as he finishes a project on time and on budget.

“The distributors and everybody we are delivering the film to is expecting a Lars von Trier film. And they know he is changing his mind along the way, so they don’t have a fixed expectation as with, let’s say, an American action movie,” says Neumann.

“They [the bond companies] are very user friendly, they are not super rigid when they are evaluating a budget. They’re not just sitting in a tower somewhere making phonecalls saying it’s black or white,” says Tobin Armbrust, president of worldwide production and acquisitions at Exclusive Media, which works regularly with Film Finances.

Producers often turn to their bond companies for practical advice. These companies have seen hundreds, if not thousands, of finance plans. They have also worked around the globe and have huge contacts books.

“You are looking at a project to make sure it’s as safe as it can be and is availing itself of the best possible plan of action,” explains Corrie Soeterboek, CEO of First Australian Completion Bond Company.

The bonding landscape

Despite increasing demand, there are still only a handful of players in the film bonding market, with newcomers tending not to have the resources or the experience to compete with the established players.

“We have been here for 63 years and our relationship with the Lloyds market is incredibly strong. They trust us, basically,” Film Finances’ Shirras says of the oldest company on the block. Set up in London in 1950 by film producer Robert Garrett and Lloyds insurance broker Peter Hope, it is now US-owned after being bought by two of its US employees, Kurt Woolner and Steve Ransohoff, in 2008 but retains a sizeable London base, bonding between 200 and 250 films a year.

Copenhagen-based EFB is a younger, fast-expanding company, founded in 2009 by three former Film Finances Scandinavia executives — Neumann, Nina Crone and Hans Lönnerheden — that is ramping up its UK activities, recently appointing former Universal executive Peter La Terriere as MD of its London office. EFB has Berlinale chief Dieter Kosslick on its board and has bonded more than 85 film and TV productions including recent Toronto titles Dom Hemingway and Starred Up.

The insurance business regards film as a niche industry. “Insurance is shipping and it is cars, life insurance, pensions. Film is such a small part of it,” says Neumann. However, he points out that bond companies are not insurers. EFB provides a guarantee that the film will be delivered to the buyers/distributors as per whatever contract agreements are in place but does not insure directly against any failures on behalf of the producer. If in the unlikely event the bond company does not fulfil the obligations and there is a claim, then the company is underwritten by solid and credible insurers that would step in.

US company ProSight, founded in 2009, offers producers both a film 
bond and production insurance coverage in a combined product called COMPLETE, thereby potentially offering costs savings.

In Australia, First Australian Completion Bond Company, established in 1991, is a leading player and has bonded films including Tracks, Snowtown, The Sapphires and Animal Kingdom. In Germany, movie insurer HDI-Gerling offers completion bonds.

Some well-known names have disappeared from the marketplace. International Film Guarantors (IFG), backed by the Fireman’s Fund, has shut down. IFG was estimated by one trade source to have written more than $14bn in completion guarantees since it was established in 1990. Some of its assets have been taken over by Film Finances, which is now insured by the Fireman’s Fund.

In theory, the withdrawal of a major player such as IFG has opened up the market. In practice, experts suggest, this is likely to remain a very concentrated sector.

Myles Nestel, co-founder of the Solution Entertainment Group, observes: “There has never been more than three in the market. Obviously, there is enough business to go round but there isn’t over-demand because, if there was, there would be 10 bond companies.”

 THE MAJOR PLAYERS

Film Finances is the dominant company in the bonding market with an estimated 60% of the US market and 60% of the rest of the world. However, with the disappearance of IFG, which held an estimated 35% of the US market and 10% of the rest of the world, there is bound to be a realignment. There are now opportunities for relative newcomers such as ProSight (in the US and Asia) and EFB (primarily in Europe) to make major inroads.