Vampires turn out to be a bloody good investment.
Soaring with the success of the Twilight movie franchise, Summit Entertainment is on the verge of closing $750 million in new financing that will allow the production and distribution company to pay off its high-interest debt load, provide a solid financial footing for the future and pay a $200 million dividend to investors and key members of the management team, The Hollywood Reporter has learned.
The refinancing, expected to close this week, was arranged by J.P. Morgan and UBS AG and consists of a $550 million loan with a term of five and a half years and a $200 million revolving line of credit guaranteed against future revenues from movies, including the two sequels to Twilight currently in production.
That money, plus profits that have accumulated from movie distribution and merchandise licensing, mostly from Twilight, will go to pay off debt from the original formation of the modern Summit in 2007, and monies owed on the current revolving line of credit.
Sharing in the dividend will be Peak Group Holdings, which was the main equity financier of the new Summit, as well as other investors and all the senior management team, including co-chairman Rob Friedman and president Eric Feig.
Peak includes investments by Suhail Rizvi's Rizvi Traverse Management (which also owns a major stake in the ICM talent agency), Jeff Skoll's Participant Media, Emilio Diez Barroso's Nala Films and entities affiliated with the Omar Amanat family trust. Barroso is the great-grandson of Emilio Azcarraga, who founded Mexican TV network Televisa.
Also in line to receive a dividend is the Franco Kiwi Alliance, a corporation owned by Summit co-chairman Patrick Wachsberger, chief operating officer Bob Hayward, president of international David Garrett and possibly others.
Among the entities that are in line to have their debt paid back with interest, and for the most part be bought out of Summit, are G.E. Capital (which also has a small equity position), the bank holding company CIT, Comerica Bank, the D.E. Shaw Group and the Aramid Entertainment Fund, which provided a mezzanine level loan.
Bank of America apparently also still has some debt to be repaid, although it is no longer an equity holder. B of A insisted that its sizable equity position inherited when it acquired Merrill Lynch be bought out. Merrill had been the banker that put the original deal together. The amount B of A forced Peak to buy, representing as much as a quarter of the company, was acquired in September 2008 for what now appears to be far less than B of A would have received if it waited until now.
While Summit dates back to 1991, the current Summit was created in 2007 when Friedman, a former Warner Bros. and Paramount executive, joined Wachsberger to run the company together. Summit until then had been mostly a foreign sales entity but the new Summit quickly expanded into domestic distribution and then production and acquisition of nearly a dozen movies a year. At that time, investors capitalized the new entity with nearly $1 billion. Summit distributed the 2010 Academy Award best picture winner The Hurt Locker, although it did not produce the film.
After a bumpy start, Summit took off in 2008 when the first Twilight movie, made for less than $40 million, grossed $192 million in North America and another $205 million internationally, for a total gross of $398 million. That doesn't count the huge DVD sales, TV sales and even bigger and more lucrative sales of licensed Twilight merchandise.
The second Twilight movie, New Moon, did even better, grossing $713 million worldwide. And the third film, Eclipse, released last year, grossed $693 million worldwide. Summit also had a hit last fall with RED, which grossed about $174 million worldwide.
Those films fattened up the Summit balance sheet but restrictions in the original deal made it difficult to pay dividends to investors while there was still debt. The need to eliminate restrictive lender covenants and loosen the purse strings for increased growth and expansion helped lead to this latest re-capitalization.
Beginning late last year, Summit had initially sought to borrow $800 million. Earlier this year that was cut back to $750 million and terms were improved slightly. The offering got high marks from an investment rating agency and was ultimately over-subscribed, meaning there were more willing investors than were needed. One reason is Summit's strong international sales on its pictures, covering more than half the budget typically, an area where Wachsberger takes the lead.
Privately held Summit, which had revenues last year of about $1.5 billion and around $400 million in profit, according to sources, had plenty of money on its balance sheet. It chose to do this recapitalization to pay back investors, bring down the cost of debt and to provide money for ongoing operations, as well as growth (Summit said recently it is moving into TV production as well). It will also help pay for production, marketing and distribution of movies, including those next two big-budget Twilight installments.
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