Introduction

This chapter presents the comprehensively beneficial association producers can and should have with a completion guarantor for each of their projects for which there may be significant investor and/or distributor financial risk. A completion guarantee sometimes is referred to as a completion bond and is a requirement for most bank and other common forms of independent production financing. As is reviewed in Chapter 14, producers should engage their completion guarantor relationship during the early development of each of their projects.

What Completion Guarantees do

As presented in Chapter 6 Production Financing, today’s project financing most often includes one or more participants from eight primary categories. Each participant engages in some level of risk when they become one of the project’s finance partners. A project’s completion guarantee ensures these participants or stakeholders, especially its financier(s)/lender—most often including a bank—that the project is bonded to complete on schedule, within budget, and delivered to the distributor(s) as represented. If it is not, the guarantor assures repayment of any and all related losses. Consequently, these crucial project participants (lender, financiers, distributors, etc.) do not evaluate the producer’s production talent/schedule/budget, or other elements, but rely on the completion guarantor to assure the credibility of these elements.

Completion guarantors are insurers, and major bonding companies are either owned or backed by large insurance carriers. Historically, the entertainment industry has had three or more bonding entities. At this edition’s release, there are only two global guarantors: Film Finances and UniFi Completion Guarantors. Both bond projects produced on locations around the world, have seasoned, competent teams, are rate competitive and headquartered in the Los Angeles area. Film Finances is the oldest, has eight global offices, and is backed by major insurers. Each are best contacted via their websites: www.ffi.com and www.unifibonds.com.

Project completion guarantors are highly specialized. To assume the risk of production overruns and completion delays, they are classically conservative. They insure a project whose budget is achievable, incorporate margins for the exceptions that will likely occur, and require that an additional overall contingency, typically 10 percent, be part of every project’s budget they guarantee.

Producers’ Perceived and Real Value of Completion Guarantors

The entertainment industry has a uniquely demanding production process. Producers create distinctively new products, one at a time. A producer cannot learn about producing one project (even franchise projects) and then use this experience to produce the same project again. Every project is exclusive in its production chemistry. Production techniques are sometimes similar from project to project, but changes in the above-the-line talent (even if they are the same people), the below-the-line crew, locations, and production demands cause these components to perform in a substantially different manner for each project.

Each project’s unit production manager (UPM) is responsible for planning and quantifying the physical production process in schedules and costs. Producers sustain an often-painful balance between each project’s creative options and associated costs. Producers seek production managers who will plan and budget each project in a manner that will fulfill the producer’s vision. Consequently, producers seek and value UPMs who understand and employ economies that allow more production value to be delivered at less cost. This is a challenging balance to maintain, with many offsets negotiated and often renegotiated for exceptions throughout development and production.

Because of often intense give-and-take planning, negotiating, and budgeting, some producers may initially begrudge the cautious scrutiny their production plans and budgets receive during their initial completion guarantor reviews. It isn’t that these producers lack confidence in producing according to their preparations. They take meticulous care to achieve a delicate balance between a project’s production quality and its schedules and budget. The concern comes in exposing the producer’s sophisticated planning and budgeting work to independent completion guarantor review, whose bonding criteria typically challenges, if not alters, the project’s tightly woven economy.

Although tradition has it that the only reason a completion guarantor participates in the production process is to facilitate financing (and that is its central purpose) guarantors often are and should be invited to contribute more. Each project’s guarantor is the second set of careful eyes (after the UPM), confirming that the production team, plan, schedules, and budget are sound and achievable. Almost always the guarantor’s observations and suggestions substantially contribute to the project’s overall production and success.

The guarantor has a fresh evaluation advantage. Guarantors have no financial, political, or creative relationships influencing them, so they evaluate solely from a business position. Because they often have substantially deeper production review experience than even their most prolific producer clients, they are more current in their references of primary production and performing talent, as well as global costs.

Guarantors should be included in the producer’s determination of each project’s director, principal cast, and even department heads. They keep current on the personal stability and relative performance capacity of all substantial talent. For those about whom they do not possess internal information, they can obtain it from other uniquely expansive and reliable sources. There is no cost for this assistance, and it is exceptionally helpful throughout the planning process. The guarantor will eventually evaluate the bondability of primary talent anyway. It is better for producers to take full advantage of this information and counsel when they are performing this evaluation—enabling the soundest decisions, as well as saving time and needless alternative relationship exploration costs.

Completion Insurance Relationships

The completion guarantor’s business is based in planning, budgeting, legal interpretation of relationships, translating the details, and comprehensively understanding and being assured the producer will be able to complete each bonded project within the budget and time allotted. Consequently, completion guarantors are substantially affected by their producer client production history, the thoroughness of the submitted production materials, and experience of the particular production team. It is relationship beneficial for producers to prepare in a manner that anticipates what is important to their completion bond partner.

Typically, there are three participating parties: the insurer, the producer, and the lender (which is typically a bank), with attendant financiers and collateral providers. These parties participate with a common understanding that, for most projects, no matter what happens the project will not go into default. This understanding is the single most influential and galvanizing characteristic of the relationship.

If a project defaults:

1. the guarantor incurs additional expenses and unwanted production takeover
2. the financier/lender (bank) is open not only to potential loan pay-off from sources other than pledged collateral but also to possible litigation and collection activities, and
3. the producer is placed in the potentially compromising position of having to allow the guarantor to assume the governing position in deciding how the project will be completed and delivered. As each participant is substantially motivated to avoid this radical upheaval, completion insurance defaults are rare.

When a project’s schedules, budget, or both are threatened, the producers most often lead the re-stabilization solution. This is typically accomplished by either renegotiating existing collateral or providing new collateral to the financier/lender, enabling amendments with both the financier/lender and the completion bond. Such amendments may include revising collateral agreements with new delivery dates, entering and pledging additional collateral, and adjusting the bank loan and completion bond to conform to these changes. This involves sophisticated maneuvering and is made possible by the confidence of all parties in the producer, the project, and the fairness of their participation.

Schedules and budget adjustments that may have appeared to contain egregiously conservative elements before production are often embraced as very welcome safety nets during production.

The Completion Bond Package

In qualifying for a bond, the guarantor must become as familiar with the project and its production as is the producer. The application for a guarantee should reflect the producer’s understanding and empathy for this process. The completion bond package should include the following elements:

1. An introductory letter setting forth the project’s title, its total below-and above-the-line budget, its production schedule, the expected guarantee cost, the anticipated U.S. and leading international territory distributors, the production financing plan, which includes the financier/lender (again, typically this is a bank), a contact for each of them, and the approximate date the guarantee is needed.
2. A copy of the shooting script (hard and soft copy)
3. A copy of the budget (hard and soft copy)
4. A copy of the script breakdown (hard and soft copy)
5. A copy of the production boards (hard and soft copy)
6. Copies of the major talent and distribution agreements with attachments
7. Insurance certificates
8. Chain of Title and underlying rights agreements
9. References (these are the same as in the financier/lender/bank package discussed in Chapter 6).

To sustain the highest validation integrity, guarantors traditionally prepare their initial planning and budgeting materials exclusively using the shooting script. If their schedules and below-the-line budgets are close to those submitted by the producer, then the producer’s budget documentation is reviewed.

If the plans are close but there are questions, an intermediary meeting with the producer may be set up, or, if it is in keeping with the relationship, a meeting might be scheduled with the line producer or UPM.

After the review is completed, typically there is a meeting with the producer. At this meeting, the guarantor presents the producer with a provisional acceptance letter. Within or accompanying this letter is a list of items to be resolved to the guarantor’s satisfaction before the project’s budget and delivery will be insured. The project and these provisional items are discussed during this meeting. An acceptance letter is sometimes presented following the guarantor’s initial review, but producers should not expect this unless the guarantor has been included in reviewing and responding to questionable issues during the planning and budgeting process. This practice provides producers with multiple benefits.

Here are some common reasons for provisional letters:

• Key talent (director or primary cast) are not bondable. Guarantors are necessarily very sensitive to this production aspect. Key talent can cripple a project. If they are unstable for any reason, they may not be bondable until they re-stabilize.
• Unstable weather conditions. Most often locations are scouted during a different season than the season of principal photography. In fact, when they are lensed out of natural season, producers can turn the leaves green or amber and crimson, but the challenges and proposed solutions must be listed in the schedule and budget. The big weather challenges, like the need to shoot in tropical clear weather when the project is scheduled during typhoon season, are more challenging to overcome. Even weather-predictable locations may demand weather insurance for reasonable protection.
• Unstable political or social conditions (insurrection, war, currency problems, and so forth).
• Insufficient time or budget contingencies. Always include a full 10 percent budget contingency.
• Unstable critical talent deal memos or contracts (ability for talent to abandon their commitment for ambiguous reasons, such as benefits or accommodations too sophisticated for the producer’s predictable delivery).

Completion Insurance Cost

Producers typically allow 2–2.5 percent for completion bond expense in their budgets, but can often negotiate less. Producers can suggest bond structures that reduce the insurers’ risk and increase their volume, which result in some producers paying close to half of what is commonly budgeted.

Like bank entertainment lending departments, these insurers specialize in projects with differing budget ranges. Some insure projects with low to mid-seven-figure budgets, others insure projects with mid-seven to low-eight figure budgets, and the largest companies insure projects with mid-eight-to low-nine-figure budgets. Film Finance can accommodate budgets of every dimension.

Chapter Postscript

Completion guarantors are importantly beneficial participants for producers. They are sophisticated organizations that reaffirm and often refine each project’s production plan. These organizations are best utilized if invited to participate early, thus facilitating many development and preproduction processes, including talent evaluation, bondability, and banking. When understood and used effectively, completion insurers are welcome production allies who contribute consistently and positively to each project’s production.