A new production financing pool managed by Montreal distributor Blackwatch Entertainment and anchored by a $20-million investment from an unnamed Canadian pension fund kicks into action next month with the thriller Dead Silent.

Blackwatch is contracted under the fund to produce ‘or cause to be produced’ a minimum of 10 films in the next two years, including five in ’99. Four films are already ‘targeted,’ says Bill Mariani, Blackwatch Communications president.

Mariani says Blackwatch is actively seeking third-party proposals including multiple-picture packages, typically with star potential and budgets of $3 million or less, as well as ‘films which have not performed and are defaulting on their bank loans.’

The $20-million investment is repayable in four years and is insured by London-based Screen Partners. ‘Through Screen Partners we’re looking for alliances around the world,’ says Mariani. ‘If there’s a film in Australia that’s short by 25% and Kent Walwin [Screen Partner’s managing director and founder] hears about, Blackwatch will put the 25% in.’

The $2.3-million mow Dead Silent is the first of three Blackwatch films contracted by Saban in ’99.

The pension fund money has been invested directly in the distribution division, which in turn will provide advances to producers.

Mariani says the fund’s $20 million is effectively being matched by a similar amount from Blackwatch, based on tax credits and international presales.

According to Mariani, the pension fund investor is insured at every level.

‘The investor is investing in a pool of 15 to 20 films, over four years,’ he says. ‘We got London Life through Screen Partners to insure their $20 million.’

As part of the deal’s structure, the investor receives 85% of all gross revenues from the distributor.

‘If at the end of four years that 85% is less than $20 million, then Lloyd’s [Group of London] will write them a cheque for the balance,’ Mariani explains.

The upside for the pension fund works in essentially the same way as off-the-top interest payments made to a bank. The guarantee is 200 basis points above the Canadian T-Bill rate, or approximately a 6.5% rate of return to be paid in six-month installments.

‘The capital is insured and he [the pension fund investor] is 100% covered [for] his interest because we pay that out of each film, because we deduct it off the top,’ says Mariani.

Recoupment component

Because the recoupment insurance only clicks in once the film is delivered, the requirement for a safe completion, insured through a completion bond, is being offset by The Motion Picture Bond Company.

The deal with the pension fund was brokered by Mariani and Walwin.

‘Basically, Blackwatch brought the $20 million to the table and Screen Partners brought the insurance,’ says Mariani.

Blackwatch intends to invest up to 50% of a film’s budget, with an additional 25% to 30% coming from the combined tax credits. The interim financing, based on the discounting of the tax credits and expected presales (another 25%) will be provided by TD Bank on a project-by-project basis.

Beyond the 6.5% annual guarantee to the pension fund investor, Mariani says, ‘if the films do really well, the investor gets up to a maximum of an additional 2% [a year] or about $1.5 million.’

Screen Partners ‘is like the copilot for this fund,’ says Mariani. ‘We go into production with their blessing. They have tentacles around the world, so we can invest in a lot of their projects as well.’

In acquisition terms, Blackwatch is particularly interested in strong feature scripts with star potential.

‘We have to listen to what the market says because they’re the ones paying,’ says Mariani, adding:

‘Also you have more clout walking in with 20 films than you have with 10. And you can get stars to do films if they love the script. But if it’s a thriller you aren’t going to get a caliber star for a cheap amount of money because they know what it is.’

Important development

In Montreal last month, Walwin says investor funds have emerged as one of the most important new developments in international film financing.

‘There are guys here [like] Bill Mariani raising a big fund – $20 million – and it’s insured. If we’re going to hit a recession I would prefer to invest in an asset rather than an overhead,’ says Walwin.

‘So many people have looked at buying shares in great public companies and when the shit hits the fan people have actually just invested in their overhead because they [the pubcos] are running for cover. If you invest in a fund it has a tiny overhead, nothing, but it owns assets. It directly owns the film.

‘This is how it will work in the future,’ Walwin says. ‘Banks will discount things they’re happy with and then we’ll come along with cash. The cash will come from an insured fund [because] we can effectively establish the fund criteria, whether it’s 25% rather than 35% [the gap share of the budget].

‘We can work with the producer, there’s enough cash and we don’t have to wait for complex closings. We’ve already got the money so we’re promoting [insuring] funds like the Mariani fund and another fund in Germany. So the banks do banking, the funds do funding, the producer does the producing and we insure it.’

The new production funds offer ‘longer haul’ gap possibilities than the typical retail bank, says Walwin.

Typically, he says the banks tend to want their money back not long after they lend it out.

‘We have these 24-month periods which are actually not enough time [to exploit a movie and pay back the bank] in the marketplace today. We need 36 or 48 months. Funds will give you that,’ says Walwin.

New people at Blackwatch

Roger Cardinal is directing Dead Silent starting Feb. 8. Shooting starts on Robert Bergman’s Brilliant (a coproduction with Ontario) in March, with Christian Viel’s The Hunter slated to follow immediately, either in late March or early April.

Blackwatch Entertainment is headed by president Yves Dion. Kim Berlin is president of Blackwatch Production.

New staff at Blackwatch Productions include Arden Ryshpan, former Quebec exec director with actra. Ryshpan becomes vp, production and joins the company in early March. Irene Carter, formerly of Film Finances Canada, has joined Blackwatch as project director, responsible for development. Marcy Rubin, formerly of Cinetel Films of Los Angeles, has been appointed to head up foreign sales at Blackwatch International in l.a.