TW caught in crunch of Village Roadshow


Time Warner on Wednesday provided further evidence of how difficult the credit crunch has made film-financing arrangements, disclosing that long-standing co-financing partner Village Roadshow Pictures has failed to fund its share of four 2008 movies.

In a regulatory filing, the conglomerate said one of its largest co-financing partners saw difficulties in the credit markets delay its ability to secure the financing needed to fund its 50% share, or about $120 million, of production costs for the four films released during second-half 2008.

As a result, TW had to take over full production costs on the films — "Get Smart," "Nights in Rodanthe," "Yes Man" and "Gran Torino" — on its balance sheet. However, it also said it treated the films on its books as if they were wholly owned.

In the conglomerate's first-quarter conference call, TW CFO John Martin said the company has a "long-standing relationship" with the co-financing partner but declined to name Village Roadshow or the films affected by the situation. But he said TW is "not concerned" about its ability to finance films.

Village Roadshow chose not to comment, but a source said the company was forced to restructure its credit facility when a third party experienced difficulties last year.

A new structure might be announced within the next few weeks. Village Roadshow then plans to pay Warners for its share of the 2008 films as well as a couple of upcoming 2009 releases.

For this year, Village Roadshow had agreed to co-finance "Where the Wild Things Are" and "Sherlock Holmes" with Warners.

Village Roadshow said in early 2006 that it had increased its film-financing facility from $900 million to $1.14 billion with terms that then extended through January 2011. The facility included a syndicate of banks, led by Rabobank as managing agent, with a financial guaranty from MBIA.

Said a Warner Bros. spokesman: "We are not concerned about this. This is a temporary restructuring issue, and we fully expect our partner will ultimately secure funding. At the end of the day, we make movies with partners and we make movies without partners. This is simply a issue of the times we're in."

The TW regulatory filing did provide some additional detail on the film finance partnership.

"The company is unsure whether this co-financing partner will ultimately secure the funding for amounts due on these four 2008 productions or the funding it had committed for films slated for release in 2009, and the difficulties in the credit market may also reduce the company's ability to attract other financial partners to co-finance its films," the TW filing said. "These or similar difficulties relating to co-financing arrangements may continue for the remainder of 2009 and in future periods."

As a result, TW said it might have to provide more funding for film production costs than it has in the past and may have to take on additional risk that it traditionally tries to mitigate via co-financing arrangements.

Georg Szalai reported from New York; Gregg Kilday reported from LA.