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GLOBAL
UNIVERSAL FILM PARTNERS FINANCING
Global Universal Film
Partners, (GUFP), was formed to avail itself of multiple film
financing opportunities, which include utilizing funding strategies
involving state and country film tax incentives and filming rebates,
film distribution guarantees and leveraging its growing film library,
all in an effort to obtain the capital it needs to produce Global
Universal’s first slate of films, which began in 2009 with
Blue Seduction.
A
January 25, 2009 ‘New York Times’ article headline
read: “Suddenly, Hollywood Seems a Conservative Investment”.
For film investors, does this mean the risk is gone from making
films? Not quite. However, the film industry is proving much more
resilient than Wall Street, the real estate market and the art
world; all of those "supposedly" stable investment areas.
Savvy Los Angeles film production companies like Global Universal
manages their investment risk through a variety of routes: pre-selling
films to foreign film distributors, casting commercially tested
actors, taking advantage of a multitude of government film tax
incentives; thus effectively reducing a substantial portion of
the risk in financing its films.
Typically, a foreign governmental entity providing tax credits
(e.g., Canada, France, etc.) will receive a return from sales
of the film within that particular country only. In the U.S.,
there is no such return, as the individual States provide the
film tax incentives, but the tax incentives are generally lower.
The tax incentives are usually paid directly to the bank and are
used to cover a significant portion of any production financing
extended by such bank.
Additionally, any financial accommodations extended by the film’s
distributor to Global Universal will be pledged to the bank. After
the bank production financing has been repaid by tax incentives
and any distributor advances, the distributor will receive a return
of its investment from the first sale of rights to the film for
its sales commitment from a particular foreign territory. Global
Universal is then uniquely positioned to realize an uncapped return,
without corresponding investment risk, from the sale of rights
to the film after the film distributor is reimbursed. Global Universal
will retain the asset constituting the ownership of the film on
its books, thereby building a valuable Film Library that will
create long-term shareholder value and facilitate future financing
of the Company’s films.
Example of how GLOBAL UNIVERSAL
limits the downside risk...
The
upcoming feature film, “American Sunset”, is being
produced by Global Universal Pictures in the Province of New Brunswick,
Canada, where the Company will be issued both Provincial and Federal
tax credits, which are bankable and could provide up to 50% of
the production costs of the film. These tax credits are granted
and do not have to be repaid by the Company. They will be pledged
to a bank for production financing and, after completion of the
film and a required audit, will be used to pay back the bank loan.
Also, to further limit risk, the Company will attempt to negotiate
financial accommodations from a distributor, such as a minimum
guarantee or advance, to cover an additional portion of the production
cost, and repay the bank directly.
Global Universal’s Management Team has considerable experience
in structuring co-production treaty films, which are films that
are co-produced between two or more countries (e.g., Canada and
France, or Canada and England, etc.). Here Global Universal, through
its Canadian subsidiary, GUP, could receive tax incentives approaching
70% or more of the budget of any film, which can be utilized to
obtain bank financing without cost to the Company.
Global Universal Entertainment plans to produce films in any one
of several States, which offer up to 40% plus, of the amount actually
spent on producing a film, in the form of tax credits or rebates.
Again, these tax items will be monetized by a bank, which will,
in turn, provide production financing to Global Universal. To
complete the financing, the Company will seek a combination of
advances or guarantees from a distributor, possible pre-sales
from one or two territories, private investor commitments and
deferments of certain production costs.
Again, after repayment of the film production loan from the bank,
the distributor will receive the first funds derived from the
sale of the film to recoup its investment, then the private investor
(if any) will be repaid, along with a generous profit, and, finally,
the deferments will be paid, including salaries and fees due to
Global Universal.
These financing mechanisms provide a high degree of confidence
that Global Universal films will achieve “break-even”,
or even realize a profit even for direct-to-video/DVD releases,
driven by increasing consumer demand for pay & cable TV, satellite
and DVD rentals and sales. If a Global Universal film warrants
a theatrical release, then the upside potential will obviously
be even greater.
Global Universal Film Partners is currently negotiating with financial
partners to form a strategic alliance to raise sufficient capital
that will enable Global Universal to funding the on-going production
of a “slate” of several films. The capital raised
will be released “as needed” to produce each film,
with sales and distribution of each film agreed to in advance.
The concept of producing back-to-back films will result in certain
economies of scale and reduction of duplicate overhead, as well
as providing our financial partners and investors with the safety
of cross-collateralizing investment risk over many films instead
of just one.
Whenever possible Global Universal will endeavor to retain the
film asset to build its film library and create long-term value
for its shareholders.
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