What is It?
|The Runway, Irish feature film (2011)|
Completion guarantors merely guarantee the delivery of certain physical items to a particular distributor who has promised to make a payment to the producer if those items are delivered. A completion guarantee does not guarantee to pay overcosts in respect of production of films as long as the relevant items are delivered which require the distributor unconditionally to pay the amount which was agreed to be paid.
What Does a Producer have to do
To obtain a completion guarantee the producer needs to submit the script, the budget, the production schedule and the financing plan of the film for approval to the prospective completion guarantor. These are checked rigorously and often amended in the light of their requirements. The completion guarantor will insist on adequate contingency provisions in the budget.
Completion Guarantee Security Agreement
A completion guarantor normally requires a producer to enter into a completion guarantee security agreement with it. This entitles the completion guarantor to take over the film if certain events of default occur by the producer, mainly related to whether the film is either going over budget or not keeping to its schedule or both. In this regard, the completion guarantor becomes like a receiver appointed over the assets of a company and the role of the receiver is to do the minimum to complete and deliver the film in accordance with what was promised to the distributor who is going to pay the delivery payment to the bank which lent money to the producer in the first place.
Once the producer has entered into the completion guarantee security agreement and the completion guarantor is satisfied that the strike price for the film is available it will issue a completion guarantee to whichever banks and other investors have required its issue. The strike price of the film is the amount which the completion guarantor believes will be needed in order to complete and deliver the film. It is not necessarily the total cost of the film as provided for in the budget and the producer has an interest in making sure that the strike price is kept to a minimum because the completion guarantors fee (approximately 4.5% of the strike price with a rebate of 1.5% if no claim is made after the film has been delivered) is calculated on the figure.
The Strike Price
For the completion guarantee to be effective, the amount of the strike price must be available from the financiers to the producer. This is often addressed in a mutual funding agreement where there are a multiplicity of financiers and each of them wants the unfettered commitment of all the others to fund the strike price so that the guarantee is effective. Payments which are contingent upon delivery of the film cannot be included in the strike price and very often producers are compelled to defer certain of their fees pending delivery of the film in order to ensure there is sufficient finance in place to meet the strike price. The payments which come in on delivery are then used to pay their fees but at that stage the completion guarantor is no longer at risk.
Cut Through Letter
Financiers, particularly banks, often want to be sure that the completion guarantor has the resources behind them to cover costs if the guarantee is called and seek a cut through letter to their reinsurers with whom most completion guarantors will reinsure their risks.