Sandra Richmond is a partner in the Toronto law firm of McMillan Binch LLP and a member of the firm’s KNOWlaw Group.

Most production financing isn’t paid until delivery or later, so producers often need to get bridge or interim financing from a bank.

A signed commitment letter from the bank doesn’t mean you’ll soon have money in hand, however. The bank will want more reassurance – and more documents – than that, before you can draw down any money.

The sheer number of documents, organization and time required to close interim financing can be overwhelming if this is your first financing transaction. Here are some tips to help it go more smoothly:

Use document lists

It’ll take a lot of time to keep all of the drafts of all of the documents in order. Organize early and make the effort to stay organized.

The document list or closing agenda for the bank financing will be your checklist for the transaction.

It lists all the documents and steps needed to close, and indicates who’s responsible for each and the status of each. Unless something on the list is noted as a post-closing matter, it has to be done before the bank will advance money.

Ask the bank to have its lawyer generate the list as soon as possible and go through it carefully, noting what information and documents are needed and who’s responsible for getting them. Check subsequent versions to keep track of any additional requirements and the status of documents.

Don’t assume the bank and the lawyers will be doing all the paperwork – you’ll have to provide a number of documents, such as the financing structure, budget, production schedule and cash flow.

Review documents carefully

The bank will draft most of the documents for the closing and, with a few exceptions, they’re not very negotiable. However, you should review them and ask your lawyer and/or the bank about issues or language you don’t understand or are concerned about.

For example, make sure your representations and warranties are accurate and that you understand your obligations under the loan and security documents.

If you’re giving a guarantee, make sure you understand your liability and whether it’s limited in any way. If there are two or more guarantors, they may each be liable for the entire loan as against the bank, but they might want to have a separate agreement between themselves – separate from the bank transaction – to ensure they share liability.

Deal with security registrations

The bank will require you to sign a number of security documents, granting the bank security in the production company’s assets in case the loan is not repaid. The bank will want its security interest to rank ahead of everyone else’s and will usually do a search to see if other parties have registered security against the company.

A single-purpose production company is not likely to have many security interests registered against it, although there may be some. Typically, however, the production financiers and other parties that might have registrations (such as ACTRA) agree to subordinate their security in favor of the bank. (They may, however, need to negotiate and document the priority of security among themselves.)

If the production company isn’t a single-purpose company, or if a parent company is guaranteeing the bank loan, there may be registrations that are ahead of the bank’s.

The bank will require you to have these registrations discharged (e.g., if the registration relates to an earlier loan that has been repaid) or have the other party sign a document saying it agrees to let the bank’s security come first.

In many cases, this is a simple matter. Sometimes, however, it will require negotiations with the third party about their willingness to sign or the wording of the document. Other times it may just take a lot of perseverance to get the third party to pay attention to a matter that understandably may not be a priority for it.

Coordinate documents

You – not the bank – will need to coordinate third-party signatures on the bank’s documents, and it’s wise to start this as early as you can.

For example, the bank usually requires the producer to send each financier or funding source a direction drafted by the bank that requires it to pay its money directly to the bank when it becomes payable.

The bank will want each of those parties to sign an acknowledgement that they received the direction and an agreement to pay that money (e.g., licence fee, distribution advance, equity investment, grant, tax credits) directly to the bank.

Although many industry parties now have standardized documents (which minimizes negotiations between the bank and the third party), it may still take time for the third party to review, sign and return the documents.

Have insurance in place

The bank will require that your insurance is in place and that the bank is listed on insurance certificates as an additional insured before it will advance money.

For production and general liability insurance, this can be done fairly quickly, but errors and omissions insurance may be an exception.

With most insurers, your lawyer has to review your application and indicate approval of your clearance procedures before the coverage is put in place, so at the very least he or she will likely want to discuss the procedures with you and review the documents you’re using. If there are controversial issues in your production that need to be discussed with the insurer’s lawyer, this process could take even longer.

Complete your bond

Most investors will want to protect their investment in your production with a completion guarantee, which will come with its own negotiations, documents and requirements.

You’ll need to keep on top of these to make sure a delay here doesn’t hold up your bank financing.

Even if you don’t have a bond, your investors will usually require you to defer fees until the production is delivered so there’s some money set aside for contingencies. The bank will want to see written deferral agreements.

The bank will require a ‘corporate’ opinion from your lawyer that the loan and security documentation was authorized by, and is enforceable against, the companies that signed it – usually the production company or companies and any parent companies providing guarantees.

Your lawyer won’t be able to give this opinion unless your corporate documents or minute books are up-to-date (e.g., with duly elected directors and officers, and resolutions authorizing the loan and guarantees).

This may be straightforward or it may take some time, depending on the state of your minute books. But it’s something that can be done early in the process, so any problems can be addressed.

The bank will also require a ‘chain of title’ opinion saying the production company has the right to produce the production based on the underlying property.

This opinion typically deals with the acquisition of underlying rights (e.g., option/purchase agreements) and rights during development (e.g., bible agreement, screenwriter agreements and story-editing agreements).

However, in some cases it might include additional agreements. For example, the chain of title documents for a children’s television series that features songs might also include an agreement with the songwriter.

Make sure the documentation you provide is in order and is complete. For example, if you optioned a property, include evidence that the option was exercised properly (e.g., written notice of the payment being made).

If there are any gaps or problems, your lawyer may need to draft additional documents and you may need time to get them reviewed and signed by other parties.

The bank may also want to see copies of all the chain of title documents.

Your first drawdown from the bank financing might be a little less than you’re expecting.

The borrower always pays the bank’s legal fees and setup fees. These come off the top of your first drawdown, so make sure those are taken into account when you request your first advance.

Post-closing matters

There will be a few matters left for after the closing. For example, as part of the interim financing you may have given an undertaking to register copyright in the production. Make sure those final matters are taken care of when they should be.

It’s usually the case that the more parties involved in the financing, the longer and more expensive the closing is likely to be.

If you’re doing a coproduction, you may need to coordinate with your coproducers – to exchange information and documents with them, or just to let them know the status of the transaction. Having different parties in different jurisdictions can also complicate and extend the process.

It’s a lot of work to keep on top of all the documents and requirements for the closing, but being organized and politely persistent can help save you time – and the frustration of having to wait for your money.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice in any particular situation.)

-www.mcmillanbinch.com