Uni pencils loan into D'Works bid

Backup funding offered as part of financing package

Universal is the prohibitive favorite to win distribution rights on films produced by the new DreamWorks, with ongoing talks focused on a related $150 million loan from NBC Universal to the soon-to-launch company.

The loan could be drawn upon only if other bank funds were exhausted, and its recoupment would be subordinate to DreamWorks' senior bank debt. NBC Uni has offered the backup funding as part of a DW financing package worth as much as $1.3 billion.

Reliance Big Entertainment recently agreed to provide $550 million for a 50% stake in the company. JPMorgan Securities is overseeing the remaining debt portion of the package.

The investment bank itself will put up at least $100 million, so with the NBC Uni contribution that would leave about $500 million for JPMorgan to raise through a syndication of other banks. It's also possible that JPMorgan or RBE will find another bank to put up an additional big chunk on its own, making it possible to keep the syndication to a more manageable $400 million or so.

"All of this stuff is going to probably take until the end of December to close," a participant in some of the talks said.

Disney remains a distant second in the contest for DW distribution rights. But should it prevail, the Burbank studio would be expected to provide a loan similar to what NBC Uni has offered.

All parties remain optimistic of moving ahead with the DW plans without delay, despite the turmoil in the credit markets. When any of the moves might be announced is unclear, as insiders hope to fly below the industry's radar for as long as possible.

Steven Spielberg, DW chairman David Geffen and DW chief exec and co-chairman Stacey Snider already have given notice to Paramount of their financing plans. Par responded by letting the DW execs out of their contracts immediately, and the studio also served notice that 150 other DW employees are free to leave as well.

Geffen has led the charge to separate DreamWorks from Par, but he's not expected to be part of the new company. Spielberg and Snider will hold the lion's share of management's 50% stake in the new DW.

NBC Uni would prefer that its $150 million loan be treated as an equity investment, should the funding ever be drawn upon. But that point would have to be negotiated, and there appears to be some resistance on the point from RBE, whose DW interest could be diluted in the process.

The composition of an eventual DW board is even more speculative at this point. But it appears likely that seats on a DW board of about six directors will be evenly divided between Reliance and management, with the latter granted effective operating control.

Under current plans, DW will try to get a first film project into production by September and gradually ramp up to an annual slate of six features by 2010.

Uni would reap a fee of about 8% for distributing DW films, continuing a recent trend in which majors have settled for lower fees to lock up multiple-film distribution relationships. A five- to seven-year output agreement is expected.

DreamWorks Animation -- a publicly traded company that will remain separate from the new DW -- pays Par just 8% on its films, and Par recently agreed to accept a similar arrangement in extending the major's distribution agreement with Marvel Studios.

Before Par acquired DW in 2006, DW handled its own domestic distribution but paid Uni distribution fees averaging out to a bargain-basement 6% per film, execs familiar with the terms said. The arrangement -- covering international theatrical distribution and domestic home video -- called for a maximum fee of 10% per film, but the percentage was routinely lowered once releases crossed contractual benchmarks in foreign grosses.

"The studio still made a profit," an exec familiar with the deal said.

Separately on Tuesday, a well-placed source denied a published report that RBE had re-engaged in talks with MGM about a possible investment in the Lion.

RBE and others, including former Warner Bros. and Yahoo exec Terry Semel, earlier were approached by Goldman Sachs about a possible investment in MGM. But all such parties decided to pass and have not expressed any interest in renewed discussions, a person familiar with the process said.