The discounting of production receivables is the essence of all production financing. Whether for television or film, production receivables can include, among other things, licences to broadcasters, pre-sales or licences to distributors, negative pick-ups, equity investments, tax funds and grants or rebates made available by various institutions. The production receivables for a particular project are typically assigned to the bank by notice of assignment and the proceeds received are used to retire the loan. For significant licences or distribution agreements, where payments are contingent upon delivery, it is common for banks to require the implementation of multiparty agreements involving the producer, the completion guarantor, the bank and the licensee or distributor. This type of agreement is commonly referred to as the Interparty Agreement.
Although sometimes difficult to settle, the Interparty Agreement brings the pertinent parties together and provides the bank with significant comfort that it will receive the amounts owing under their loan, when due. The Interparty Agreement has the effect of modifying the terms of any pre-existing licence or distribution agreement and of accomplishing various matters that are of fundamental concern to a bank. The Interparty Agreement enables all parties to approve and consent to the bank's security interest and will usually have a list of parties in order of priority of their respective security.
The bank analyses the production receivables and determines the circumstances under which these payments must be made or potentially avoided. These circumstances need to be mitigated through the settlement of the Interparty Agreement. The agreement also serves the purpose of bringing the completion guarantor and licensee or distributor together on the issue of what constitutes delivery. The form of Interparty Agreement set out below is one that would primarily be used for a distributor or licensee where the licence fee or advance payable is due on delivery and represents a significant portion of the bank's source of repayment. This type of agreement would not be appropriate for minor licences or for transactions where the bank's advances are to be repaid by multiple sources. In these circumstances, notices of assignment and direction and the distributor's or licensee's acknowledgements may be more appropriate. The form of Interparty Agreement required by a bank will depend on various factors, including the terms of the financing; the amount of the receivables relative to the loan; the identity of the producer, the licensee, the distributor and their track records; the type and terms of the production receivables; and the timing of payments. The following agreement is in relation to a multiparty agreement.
Please note that this is only a sample of an Interparty Agreement. Interparty agreements should be negotiated according to the particular facts and circumstances of each transaction.
Film finance transactions with multiple sources of funds will always have a much more complex recoupment schedule and will generally take much longer to negotiate because of the number of parties to the agreement.
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