Big Banks Back Out of Hollywood
Goldman Sachs and Deutsche Bank are pulling out of their commitment to underwrite $1 billion of financing for MGM's slate financing deal, according to the Financial Times, which broke the news.
We know that the credit crunch is being felt far and wide -- and now we see that it's being felt all the way in Hollywood at the most hallowed of filmmaking institutions. No one is raising any debt right now, and until the credit markets calm down, things will be quiet. Goldman Sachs and MGM were was raising about one billion dollars to finance a slate of MGM productions and co-productions, including the Hobbit, the fourth Terminator movie, and most likely the next James Bond film (co-produced with Sony ).
The FT says Goldman and Deutsche didn't return calls -- and says that the banks commitment has been switched from a commitment to underwrite the financing to a "best efforts" commitment. Best efforts meaning, they'll do their best, but if they don't find interested investors, the money won't get raised. And they didn't want to be left on the hook if they couldn't find any interested investors. And it's looking like they can't.It usually works like this-- the people who take on the financing syndicate the commitment -- i.e. they sell off the debt so they're not holding it themselves. If they can't find anyone to buy the debt commitments there's no deal. Voila!
This is pretty big news. Last week I reported that the deals that were already done (money already committed by banks etc) were safe, and wouldn't be shut down. In this situation, the underwriters were in place -- they just can't make this kind of deal happen in the midst of the credit maket chaos. It has nothing to do with MGM -- if MGM can't attract financing now, it means no one will be able to. And it doesn't speak poorly about the film industry in general -- last week, people in the biz were telling me there were more financing deals in the works and that Wall Street sees movie slates as an alternative investment. It's all a reflection of just how bad the credit crunch is right now.
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