Today, I want to discuss the Film/Movie Completion Bond. A completion guarantee assures that a project will be completed within a certain amount of time and on budget. Completion guarantees have become more popular with smaller, independent film houses. The bond is similar to a performance and payment bond that guarantees to the company financing that the motion picture will be finished and delivered on schedule and within budget.
There are many different production and film companies popping up every day. The companies that are financing these projects want to have a recourse if the project is never finished or is not actually delivered. One of the ways of obtaining recourse is requiring the recording company producing and making the motion picture to guarantee that they will actually do it by requiring the production company to provide a surety bond.
My office has experience underwriting these matters. Essentially, what we’ll need is to review resumes on the producers or entities making the project, the budget, the timeline for completion, the bond form required by the lender, and their financial statements. We want to see that they’ve completed projects in the past on budget, they have experienced shooting these types of motion pictures, and they had the funds to pay if they were unable to finish the production. We will also request the amount of funds being used to finance the project and their sources. The distribution of the funds will also be a factor. The surety will want to review the equity capital that is being contributed compared with the debt financing.
Collateral has been required for many of the smaller companies applying for the bond. Acceptable collateral could be:
- A letter of credit issued by a bank approved by the surety in the format required by the surety.
- A cash deposit held by the surety.
- A pledge of publicly-traded blue-chip securities through an account control agreement. The weighting of the securities and the pledge agreement used by the brokerage firm must be preapproved by the surety.
- Real Property — The property must be unencumbered in a value of 2x – 3x the bond amount.
The full underwriting submission will allow my firm to determine the final terms for the bond.
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