Credit Finally Loosens Up for DreamWorks

DreamWorks Studio, the home of superstar director Steven Spielberg, has been caught in a funding crunch for the last 10 months as credit markets around the world crumbled. With bankers nervous, Spielberg and longtime producing associate Stacey Snider became the poster children for Hollywood's financing ills: If Steven Spielberg can't raise money to make movies, who can?

That problem now appears to be solved. On Aug. 17 DreamWorks announced that after prolonged negotiations with a bank group, J.P. Morgan Securities (JPM), the studio's longtime banker, had arranged $325 million in senior debt to allow film production to start. Together with a matching $325 million in equity from Indian entertainment giant Reliance Big Entertainment and an estimated $175 million in guarantees from its distributor, Walt Disney (DIS), Spielberg and Snider have $825 million in capital to begin making their planned five to six films per year.

The first film is likely to be Dinner for Schmucks, a comedy from Meet the Parents director Jay Roach that stars Paul Rudd and Steve Carell. It is being jointly financed with Paramount and Spyglass Entertainment, and likely will be released by Paramount under an exit deal with DreamWorks' former studio to jointly produce a select number of films.

Complex Dealings Spielberg recently approved a script for a remake of the 1950 Jimmy Stewart comedy Harvey, about a man and his imaginary 6-foot-tall rabbit. That movie is expected to begin filming in January. The film is a joint production with Fox (NWS), which owns the rights to the play on which the film was based. The Harvey remake is likely to be the first film released under DreamWorks' agreement to distribute its films through Disney, although Fox and Disney likely still need to determine how they will split revenues.

Until now, however, the biggest production involving DreamWorks was in assembling the banking syndicate willing to take on the loan. DreamWorks split from its three-year association with Paramount Pictures (VIAB) in 2008 and had planned to raise $1.3 billion for production, including $650 million from banks. In the end, after several starts and stops, J.P. Morgan assembled a group of banks that includes Bank of America (BAC), City National Bank, Wells Fargo (WFC), Comerica (CMA), Union Bank of California, SunTrust Banks (STI), California Bank & Trust, and Israel Discount Bank. DreamWorks, which is calling the new debt "the first wave" of its financing, had cut its initial request when banks balked. Now, it likely will go back to the credit markets in the next three years, when DreamWorks executives anticipate their track record and an improving credit market will improve the chances for expanding film production. Reliance would then match the added funds under an agreement between Reliance and DreamWorks.

"This [financing] will allow us to move ahead quickly into production with our first group of films," Snider and Spielberg said Monday in a joint statement. As part of the agreement, DreamWorks established a board of directors that includes Spielberg, Snider, Reliance Vice-Chairman Amitabh Jhunjhunwala and J.P. Morgan's Alan J. Levine, a former head of Sony Pictures' (SNE) studio operations.

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