Scottsdale, Ariz. - The entertainment securitization sectors might just be in their infancy, but the coincidence that rock music stars were at the conference hotels during the ABS symposiums - alternative rockers the Smashing Pumpkins were staying at the Arizona Biltmore and Elton John was staying at the Fairmont Scottsdale Princess - might just be a good omen for this budding sector.
At an entertainment ABS panel in Scottsdale, at least, it became clear that the securitization industry was spreading from music into movies. The "recession-resistant" film receivables sector of the ABS market might just be starting out, but according to panelists at the SRI conference here, film receivables deals are set to take off.
"We've done eight securitizations of film royalties," said Anne Lacombe, vice president of German bank West LB. "We do it through our asset-backed conduit paper, and all of these securitizations are worth $3.5 billion."
With the asset-backed market growing ever-so-popular these days, it seems as if people are trying to develop ways to securitize everything under the sun. In recent years, the securitization of motion pictures (film receivables) has been gaining popularity, causing many market participants to question whether this is a growing sector or just a passing fad.
"I don't think it will ever be a large sector of the market," said Ira Wagner, a senior managing director at Bear Stearns & Co.
Even though Wagner has this revelation, Bear Stearns recently participated in a film securitization.
"We did a transaction for DreamWorks SKG," said Wagner. "It had a senior class and a subordinate class. We were the lead on the senior class and Chase Securities Inc. was the lead on the subordinate class. The total deal size was $540 million. It was priced in December and closed in January."
A lawyer familiar with these types of transactions explained how they work.
"Effectively what they do is the studio agrees to sell all of its live action films for a certain period of time to a business trust," explained the lawyer. "Then, the trust-issued debt secured by the films. Basically, the debt is paid off by the revenues from the films."
As a result of this, the film company is required to deliver all live action films that are produced over a specified period of time so that there is no adverse selection.
"It seems to me that this is an attractive way for the studio to finance on the credit of the films as opposed to on their own corporate credit and to achieve off balance sheet treatment for accounting purposes," said the lawyer. "I think that other studios have been looking at these transactions and that they will become more popular."
Although some may view these transactions as being "attractive", Wagner doesn't think that they will become a popular sector.
"There have not been very many of them," said Wagner. "There have been a variety of loan vehicles put together to lend money to studios backed by the films. I don't know if you can necessarily call them securitizations.
Wagner went on to say that there has "been much more done in the loan market, than in the securitization market", citing DreamWorks as being the only term securitization he is aware of.
"There have been several deals done in commercial paper vehicles," Wagner added.
