Bankers reconsider role in entertainment financing as big losses spur retrenchment.

Bankers reconsider role in entertainment financing as big losses spur retrenchment 

Behind the hoopla of Hollywood, the people who lend the money are using the words "conservative" and "cautious" to describe how they are approaching entertainment industry financing - as more than one big name studio has gone bust.

"We are always conservative lenders," said Gary Matus, senior vice president of the Los Angeles-based media/entertainment group of Bank of America.

"Banks are becoming more cautious," echoed Brian Maki, vice president at lender Yasuda Trust in Los Angeles.

Bankers have become wary of entertainment-related lending because of the number of independent film companies that have recently gone into bankruptcy, said Frank Johnson, managing partner for the Entertainment Industry Practice Group of the Big Six accounting firm Price Waterhouse.

"The entertainment business is a high-risk, high-reward business," said Johnson. And bankers don't like to take risks, he noted.

In years past entertainment companies were riding "a very big wave" of success as new mediums like home video became popular, said Clark Hallren, vice president of New York-based Chemical Bank's Entertainment Industries Group. But "now the whole system is realigning itself to not be as aggressive as they have been in the past," he said.

By not financing first productions, Chemical Bank minimizes its risks. "We don't take market risks to finance the production of films," Hallren said.

Instead, once a film has already been released, the bank lends the company money to release the film on video or television. This is less risky because the financier already knows how well the film performed the first time around, he noted.

Chemical Bank, which has been serving Hollywood for more than 45 years, has about $750 million committed to the industry at a time. Some of its clients include New Line Cinema, Morgan Creek, Live Entertainment and Carolco Pictures.

City National Bank, which has about $100 million outstanding to entertainment companies, secures a guarantor for loans it makes, said Chairman Bram Goldsmith.

Bank of America's financial commitment to the entertainment and media industries, on the other hand, reaches as high as $5 billion at times, Matus said. He noted, however, that business is off about 15 percent because lately there has been a decrease in the availability of "quality" transactions.

Yasuda Trust has lent about $200 million to entertainment companies. Some of Yasuda's clients include a Burbank-based Walt Disney Co. subsidiary and a subsidiary of Beverly Hills-based United Artist theater chain.

France-based Credit Lyonnais is one of the biggest lenders to the industry. Its commitments to American filmmakers are approaching $2.7 billion, but its presence in the industry is shrinking.

The bank recently announced it would overhaul the executive suite of its Netherlands office and dismantle its entertainment lending unit in the process, according to the Hollywood Reporter.

Credit Lyonnais officials are making the moves in reaction to the massive amount of money the bank has tied up in financially strapped Beverly Hills-based MGM-Pathe Communications Co. Credit Lyonnais has lent more than $1 billion to the troubled company.

The European lender has a reputation of being more risky than most of its American counterparts. "Very few banks were quite as adventuresome as Credit Lyonnais in terms of their lending," Johnson said.

Credit Lyonnais' low profile could both help and hurt other bankers, industry experts say. One the one hand, production company executives formerly threatened to ask Credit Lyonnais for a loan if they couldn't get it elsewhere. Now banks won't have to worry about competition from the European lender, Johnson said.

On the other hand, the demise of Credit Lyonnais "puts more pressure on a number of other banks to fill the void," Hallren said. There is less financing in the entertainment arena and henceforth less strength in the industry in general, which is not good for other banks lending to Hollywood, Hallren added.

Banks need three strengths to successfully lend to Hollywood companies, Hallren said: a very strong management, a sound business plan and strong capital.

PHOTO : Losses: Credit Lyonnais takes a hit.