Banks will tend to split distribution agreements into three categories:
1. Primary collateral - these will be with counterparties of undoubted standing and will include all the US Major Studios. It may be that a lesser counterparty is prepared to support its payment obligation with a letter of credit. A letter of credit transfers the obligation to pay to a bank and in most cases this will be considered primary collateral. Other conditions will apply, such as the completion guarantor adopting the contract, the contract being properly assigned and payment being due without any set off. Banks will lend up to 100 per cent of the face value of this collateral.
2. Secondary collateral - these will be with acceptable counterparties of lesser standing. In addition to the conditions mentioned within primary collateral, contracts will only be deemed to be acceptable provided a signature payment of
20 per cent has been paid. Banks will lend up to 50 per cent of the remaining value of this collateral.
3. Tertiary collateral - these will be contracts that are not considered acceptable. Banks tend not to apply any value to these contracts although they will form part of the bank's security.
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