A quick primer on how movies get financed can help explain how Colorado’s two new film and television incentives differ from what is already out there.
Producers take state incentives and use them as collateral for bank loans, essentially an advance. Banks, however, will tack on fees and won’t lend against the full amount.
If the incentives are state tax credits, producers must find buyers who can use them, and they usually require a 15 percent or greater discount. Lawyers also get a cut when they craft the legal paperwork.
What starts out as a $1 million incentive might end up as $700,000 in cash that a producer can use.
To protect their position, lenders also require producers to take out completion bonds. Bonding firms vet budgets to make sure they are realistic, control how and when funds are disbursed and promise to make good if the film runs over budget.
Colorado’s innovation is to hold state incentives in escrow with the bonding firms, eliminating the need for a bank. That allows producers to get more money out of an incentive in less time.
Producers also raise money from equity investors and presell distribution rights, typically in larger foreign countries.
Banks will lend against those presales, as well as against unsold territories expected to eventually sign on — what is known as gap financing.
Colorado’s second innovation comes in setting aside some of its funds to enhance that gap financing, which typically doesn’t exceed 10 percent. By providing a guarantee for additional financing, Colorado would allow producers to squeeze out another 5 percent in gap financing.
Unlike expense reimbursements, that money can be reclaimed and used again for other guarantees.
