The content of this communication is for informational purposes only. You should not construe any information contained herein as legal, tax, investment, financial, or other advice. You should not rely on the information contained herein as a basis for making any business, legal or other decisions. RWA Company LLC and its members, officers, directors, owners, employees, agents, representatives, suppliers and service providers cannot be held liable for any of the information contained in this communication.
Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer by RWA Company LLC or any third party service provider to buy or sell any securities or other financial instruments in any jurisdiction.
THIS INFORMATION IS PRESENTED “AS IS” FROM 120dB FILMS; RWA COMPANY LLC TAKES NO RESPONSIBILITY FOR ITS ACCURACY.
This originator is being represented by RWA Company LLC via the designated appointee Gregory Di Prisco (@g_dip), all questions and concerns from the community may be addressed to Greg.
Background check (on management)*:
Credit check (on primary entity):
The scope of our background checks (currently run through Kroll) can be found here. Entity credit checks are performed by Experian. No personal credit checks were performed as all loans are intended to be non-recourse.
120dB Films [120dB] is an entertainment finance specialist that was founded in 2004 by Stephen Hays. They are a licensed lender in the state of California and issue loans both domestically and internationally pursuant to the California Financing Law. 120dB issues tax credit loans, presale loans, gap loans, short-term bridge loans, finishing funds, and P&A loans. Since its inception, 120dB has deployed capital for third party hedge funds and a Fortune 500 insurance company.
Key Management Bios:
Stephen Hays is foremost an asset manager and a fiduciary. He has spent his entire career, over 35 years, deploying capital in a range of asset classes in both the public and private marketplaces. Stephen founded 120dB Films in 2004 after 18 years in the securities industry. Since inception, the company has acted as a senior-secured lender for almost 100 films and TV series, and has achieved superior risk-adjusted returns with minimal losses. The company has deployed capital on behalf of a large New York-based hedge fund, a Fortune 500 insurer, an iconic family office, and a consortium of high net worth investors. Prior, Stephen was co-founder and General Partner of Seneca Capital, a New York-based hedge fund (1996-2003) with a focus upon event-driven investments including risk arbitrage, capital structure arbitrage, spin-offs, recapitalization and distressed securities. Before Seneca, he was a Managing Director at Furman Selz, a NY-based investment bank with a similar investment strategy (1987-1995). Stephen’s first position on Wall Street was at Laterman and Co., a risk arbitrage-oriented hedge fund (1985-1987). He received a BA in History from Kenyon College in 1983 and gained a Masters of Science in Accounting and Finance at the London School of Economics in 1985.
Stephen is a founding sponsor and former Board member of the Woodstock Film Festival and serves on the Board of Directors of Green Chimneys, a non-profit school for disadvantaged youth, where he chaired the Investment Committee for many years. He is an active supporter of numerous other charitable and non-profit organizations, and is a passionate advocate for organizations focused upon social justice and human rights.
Peter Graham has been actively involved in financing entertainment companies and film production for over thirty years. Since 2005 he has partnered with Stephen Hays on 120dB Films. Before 120dB, Mr. Graham was a Managing Director of the Lewis Horwitz Organization (LHO), one of the premier companies specializing in financing independent film and television production. Prior to LHO (1997-2005), he was a Vice President with Union Bank of California’s Entertainment Department (1992-1997) lending to independent film productions. Mr. Graham began his entertainment financing skills with First Interstate Bank from (1990-1992). He is a graduate of the US Merchant Marine Academy and has an MBA from UCLA’s Anderson School of Management.
Mr. Graham has expertise in complex international film financing and distribution. He has also provided consulting services for debt restructuring. His specialty is developing creative deal structures encompassing both debt and equity. He has been involved in financing over 350 independent movies and television programs including Monster, Jeepers Creepers, My Big Fat Greek Wedding, The Virgin Suicides, and The English Patient.
Mr. Graham previously served on the I.F.T.A Board of Directors and has served on the Advisory Board of Directors for the American Film Institute Festival. He is a frequent speaker on industry panels and a lecturer for university courses.
Brandon Fidanque has been an analyst at 120dB since 2013. Prior to joining 120dB, Brandon worked for 6 years at the Los Angeles accounting firm Miller Kaplan Arase LLP in the royalties and licensing division. While there, he conducted royalty audits on behalf of film and TV producers, recording artists and video game developers to ensure they had been properly compensated. He graduated from Stanford University in 2002. An avid film fan before he worked in the industry, Brandon loves helping independent films get made.
120dB has an extensive track record and over 100 film and television executive producer credits (some of which can be viewed here). Its managing partners, Stephen Hays and Peter Graham, have a collective 50 years of experience in the film finance industry.
Most loan opportunities are generated from 120dB Films’ deep industry relationships with producers, sales agents, entertainment attorneys, tax credit brokers, allied banking institutions and alternate lenders and financiers. Other loan opportunities arise as a result of brand awareness that has been generated over 18 years of marketing and networking at most of the major film festivals and markets, as well as Stephen Hays and Peter Graham’s extensive list of Executive Producer and “In Association with 120dB Films” credits displayed on screen and in printed art (DVD’s and film posters).
Once a potential borrower has approached 120dB Films seeking a production loan, 120dB Films will evaluate the package using metrics appropriate for each type of collateral (generally pre-sales, tax credits, and gap). 120dB Films commonly lends against multiple collateral types at once; in such circumstances 120dB Films will structure as multiple sub-loans, each accruing interest at a different interest rate based upon 120dB Films’ assessment of the underlying repayment risk. Listed below are the primary loan categories and more information regarding the loan appraisal process, appropriate metrics and due diligence performed before approving and funding a potential loan.
Tax credit loans are loans secured by the expected future proceeds of state or sovereign tax credits and rebates. Numerous states and countries have incentive programs designed to induce producers to produce films or TV programs in their respective jurisdictions. These incentives are primarily designed to promote local economic development and to highlight the sponsor’s unique cultural and other features. Generally, the proceeds of rebates and credits are not available to producers until the film has been completed, and additionally a final audited cost report has been submitted and approved by the appropriate governmental agency. Tax credit loans discount the expected proceeds and make funds available to producers for production. Each tax incentive program is different and subject to change, here and abroad, and continuous monitoring is a key part of 120dB Films’ lending due diligence. In some jurisdictions, the state simply issues a check for the incentive amount once the process is complete. In other programs, the tax credit must be sold or transferred to a third party, which usually entails a haircut of 10% to 15%. For all tax credits, 120dB Films’ baseline advance rate is usually 90%, which allows for some cushion in case of a shortfall in the final credit amount. We adjust this advance rate and 120dB Films’ tax credit loan interest rate based on a variety of factors including:
- review of current rules and program details for requested jurisdiction;
- review letter of pre-certification from incentive program;
- consultations with leading tax incentive specialists on current state of incentive program;
- conversations with local film commissioner responsible for processing applications/claims;
- review budget with production accountant and consultants to confirm qualifying spend;
- confirm completion guarantee will bond qualified spend where possible;
- assess statutory timeline for filings and payments;
- determine current market price and recent range for tradable credits.
Pre-sale loans are loans secured by underlying pre-sale contracts wherein a foreign or domestic buyer agrees to provide a future payment in order to acquire the rights to distribute an entertainment property in a specific territory. Similar to tax credit loans, the proceeds from such contracts are generally not due until the film is finished and delivered to the buyer in accordance with pre-specified technical requirements. The necessary presence of a completion bond assures that the film is delivered in satisfaction of the contract terms, dramatically reducing the risk of late delivery or buyer rejection. 120dB Films adjusts these advance rates and 120dB Films’ pre-sale interest rate, based on a variety of factors including:
- size, industry position, reputation and prior relationship with pre-sale buyers;
- for larger pre-sales, a review of buyer’s current financials, often with non-disclosure agreements;
- conversations with sales agent and with friendly industry lenders regarding buyers’ financial status, payment history, etc.;
- contract provisions requiring 20% non-refundable deposit for all buyers;
- confirm no buyer exploitation rights until all payments made;
- notice of assignment (“NOA”) requirement to ensure payments made directly to lender.
Gap financing is a last-in / first-out senior loan secured by all assets and rights of the Borrower. It is generally expected that gap loans will be recouped from the proceeds of foreign and domestic distribution sales not yet made. (This is in contrast to pre-sale loans, which will be recouped from the proceeds of foreign and domestic distribution contracts already in place). For this reason, familiarity with and confidence in the sales agent is key to 120dB Films’ assessment of these loan opportunities. Other factors that can affect 120dB Films’ proposed gap amounts and interest rates include:
- presence of a respected foreign sales agent with whom we have had prior favorable dealings and demonstrated ability to meet their minimum sales estimates;
- review of foreign sales estimates provided by sales agent;
- detailed discussion with sales agent to determine basis for estimates and degree of comfort;
- appraisal of agent’s reaction to essential elements (director, cast, genre, script);
- presence of 3rd party guarantees or other credit enhancements;
- confirmation of agent’s willingness to reduce sales fee until gap loan covered by acceptable sales;
- confirmation of no agent or other marketing expenses to recoup prior loan;
- presence of minimum of two arm’s length, primary foreign territory sales to confirm values;
- intention of Borrower to obtain a completion guarantee to assure timely, on budget film delivery;
- presence/amount of cash equity by Borrower behind gap and deferred producer fees;
Finishing funds loans are senior secured, last-in / first-out loans to producers who require additional funds to complete their projects and deliver to buyers. Many finishing funds requests are from producers of films that are not subject to completion bond guarantees, where owing to cost overruns or loss of investors, insufficient funds are available. In some instances, even films that are covered by a completion bond require additional resources and prefer to seek capital privately instead of calling on the bond. Yields on finishing funds loans are similar to those of gap loans, but finishing funds loans often contain shorter maturities and lower minimum returns to reflect likely shorter durations. Additional due diligence items are listed below:
- interview producers and assess reason for overage/shortfall;
- confirm presence, or not, of completion guarantor;
- confirm presence of sales agent and obtain/review sales estimates/pre-sale agreements;
- introduce project to respected agents if not already retained and obtain opinion on likely values;
- assess availability of alternate collateral including tax credits, investor/production company guarantees, etc.;
- review current state of the film and obtain input from industry professionals;
- review budget to complete and flag excessive or unnecessary items;
- retain, at prospective Borrower’s expense, consultant to confirm budget to deliver;
- interview post-production supervisor and assess budget and adequacy of loan request to deliver;
- assess nature/character of existing financiers and related interparty / intercreditor agreements;
- insist on producer/other deferrals to minimize necessary costs.
Prints and advertising, or P&A, refers to the costs to create a film’s physical exhibition prints and support the marketing campaign for theatrical release. For a variety of reasons, producers often chose not to engage third party distributors to manage a film’s theatrical release. This may be due to an inability to agree on commercial or strategic terms with established distributors regarding cash advances, P&A expenditure commitments, revenue sharing, etc. In other instances, producers have been unable to attract distributor interest and/or prefer the economic model of self-distribution. We are frequently approached by smaller distributors that have an interest in distributing a specific film but seek outside financial resources to support their campaign. Prints and Advertising Loans have risk characteristics similar to finishing funds and gap loans, and are priced accordingly, although often with shorter durations and lower early payment provisions. 120dB Films’ goal is that shortly after funding under a P&A loan, much of the loan becomes covered by receivables in the form of minimum guarantees or advance payment deals from rights buyers (i.e., TV, video, VOD payments). 120dB Films will rarely look to recover more than a modest percent of a P&A Loan from box office results themselves. Additional analysis conducted for these Loan requests is listed below:
- interview producers to understand reason for self-distribution;
- review of assembled team and past experience/track record;
- review subject film internally and present to industry veterans for input;
- review financial structure and additional collateral available to support the loan (tax credits, foreign unsold territories, uncollected pre-sales, etc.);
- review P&A campaign budget and estimates, retain independent consultant to assist in review;
- analyze comparable film results in each of the above categories;
- stress test estimates for loan coverage to meet minimums required;
- confirm availability of meaningful equity upside, often in form of gross points;
- assess expected release timing and review competitive landscape;
- with assistance of consultants, confirm target markets and demographics consistent with material;
- insist on meaningful fee deferrals from producers/marketing managers until loan recoupment;
- insist upon Notice of Assignment or Directions to Pay from theatrical exhibitors or bookers, and all other unpaid rights holders.
Bridge loans are senior secured loans to producers that need immediate funds to prepare for pre-production (down payments for talent, director, locations, etc.) or for projects that are already in the early stages of production. Generally, a bridge lender will make funds available to producers to get them through this period pending full financial closing. Gap loan, pre-sale loan and tax credit loans are document-intensive processes that can sometimes take several months to close, particularly with large institutional bank lenders. In addition, conditions to loan closings generally include, among other things, obtaining deposits and notices of assignments under pre-sale contracts, directions to pay for tax credits, etc., and often don’t coincide with producers’ financial timing requirements. A prudent bridge lender will assess the timing and risks of financial closing, assess its willingness to inherit the underlying loan, and proceed accordingly. More aggressive bridge lenders are sometimes willing to advance funds expected but not yet received from equity investors or production companies.
120dB Films has an extremely cautious approach to bridge loans. Unless the underlying loan that will take out the bridge is one that 120dB Films would be willing to otherwise originate and hold to maturity, then 120dB Films will reject the loan request. Under no circumstance will 120dB Films bridge equity or other non-senior loan commitments. Other criteria for assessing potential bridge loans include the following:
- confirm expected closing and assess remaining hurdles;
- determine status of pending legal analysis including clean chain of title, status of contracts, etc.;
- review contemplated interparty / intercreditor agreements for potential conflicts, impediments to closing;
- communicate with the committed senior lender and obtain status of closing items;
- conduct similar gap, pre-sale and tax credit analysis to confirm underlying collateral value;
- review budget, finance plan and completion bond to confirm adequate funds available to complete/deliver/hit bond strike price.
Commitment letter / Long-form legal documentation
Once we achieve comfort with all aspects of the above, 120dB Films issues a binding commitment letter to the prospective borrower outlining the terms and conditions of the offer to finance. In some instances, the letter may precede certain necessary elements being fully in place (future acceptable pre-sales, additional approved casting, etc.), and closing will be subject to satisfaction of such conditions. Due diligence continues until the moment of closing.
After both parties execute the commitment letter, 120dB Films moves to comprehensive legal due diligence and proper loan documentation. 120dB Films believes that their outside counsels’ legal analyses and the loan documentation rival the best in the industry. Necessary documents for closing include, but are not limited to, the following:
- Loan and Security Agreement: establishes the legal obligations outlining 120dB Films’ financial commitment, the loan terms and conditions, and the various obligations of the borrower. The loan will further be evidenced by a Promissory Note.
- Liens: all loans have perfected security interest with public security filings such as UCC-1 and/or Mortgage of Copyright and other filings pertinent to local legal requirements as determined by outside legal counsel. For loans secured by a government subsidy/tax credit/cash rebate, legal protection is achieved, depending on the jurisdiction. This can be done by an assignment of the benefits if it is assignable, or by the direction of all payments into an account over which a charge has been granted in favor of Lender.
- Completion Bond: mitigates completion and delivery risk. The completion bond is issued by one of the established completion guarantors. They assure the Lender that the feature film or television production will be completed and delivered by a date certain, on budget and in accordance with the contractual requirements contained in the distribution agreements.
- Lab Pledge Holder Agreement: provides security on the film’s physical materials.
- Power of Sale: provides Lender the ability to sell the film to repay outstanding obligations in the event of default without the need to foreclose.
- Interparty/Intercreditor Agreements: ensures 120dB Films’ interests are protected in the contractual relationship between all other parties including 3rd party lenders.
- Notice of Assignment: assigns all receipts from the film’s worldwide exploitation directly to the Lender. Further Notices of Assignment in favor of the lender will be entered upon with each distributor who licenses the film in their respective territory.
- Producer Representation Letter: producers personally attest that the funds will only be used for production, no incorrect representations or warranties have been made to Lender and that they have personally reviewed the film’s budget and elements and believe the film will be delivered on time and on budget.
Once all legal documents are executed and 120dB Films has funded the loan, 120dB Films attempts to step back and let the producers make a high quality film without interference. 120dB Films is a financier, not a creative, and 120dB Films’ input would likely be counterproductive. 120dB Films does make a point of checking in once or twice a month with the producers, the sales agent, and the bond company to ensure that everything is proceeding as planned – following both the planned budget and the planned timeline.
Once the film is complete, then loan recoupment begins. The foreign and domestic distributors are invoiced and start to pay their license fees. The sales agent can start to aggressively market the finished film to new potential buyers in unsold territories. The production accountant closes out the books on the production and prepares materials for the tax incentive applications and tax return submissions. 120dB Films monitors all of these processes, staying in frequent communication with all parties.
- Exiting Loan Positions
Exit strategies from 120dB Films’ loans vary depending on the nature of the underlying loan. In general, the loans are paid off over time from first dollars (subject to limited sales fees or corridors) generated from the agreed underlying collateral (i.e., tax credit proceeds, pre-sale payments). 120dB Films expects to hold most loans until maturity or until full collection in the instance of default, and underwrites accordingly. Loan repayment for most loans usually takes between 14 and 18 months from inception, although in certain cases it can take substantially longer (for example, extended tax credit repayment schedules in certain states).
Less commonly, 120dB Films will also exit loans by selling for par plus accrued. The decision to sell down loans is a function of the remaining loan balance, duration and perceived risk, the implied remaining yield calculated at the proposed acquisition price, and the availability of other attractive loan opportunities and liquidity requirements. When 120dB Films does sell loans prior to full recoupment, it is often the Borrower who purchases it.
Track Record (Principal Recovery Rates):
Closed Loans (including charge-offs)
|Year||Amount Invested||Principal Recovered||Percentage Recovered||Weighted Average Recovery Time (Months)|
|Dates||Principal Deployed||Principal Recovered||Principal Outstanding||Good Standing?|
Outstanding Loans (Excluding Revolvers)
|Year||Amount Invested||Principal Recovered||Percentage Recovered||Good Standing?|
Closed Loans Visualized
Weighted average recovery time only accounts for loans that were fully repaid and does not account for the basis recovery schedule. This can make recovery time appear to be longer than it actually was, assuming that the vast majority of the loan was recovered and a small amount was left outstanding for a longer period of time. The year 2014 is an example where this methodology adversely affects the data, as a loan which was almost fully recovered was unable to be accounted for as such for an extended period of time.
Outstanding Revolvers Visualized
Note: Recovery rate is currently expected to be 100% on outstanding revolvers
Outstanding Loans (Excluding Revolvers) Visualized
Note: Recovery rate is currently expected to be 100% on outstanding loans (excluding revolvers)
Over its operating period, 120dB has demonstrated its ability to consistently recover principal. In its 17 years of operation, 120dB Films has a total cumulative charge-off rate of 0.6%, for an annual average loss ratio of approximately .035%. While interest income is not displayed, there were no years of its operations in which 120dB did not recover a greater amount of principal plus interest income than principal invested.
2. Provide a brief high-level overview of the project, with a focus on the applying collateral token
120dB intends to use a structure similar to that of 6s Capital. A more thorough walkthrough of this structure can be found here. The overarching concept of the final structure (which will be presented with documentation after a successful conclusion of the greenlight poll) will be “set it and forget it” as it is intended to be managed by a professional third party. This application has (to date) one specific material term that MKR holders should be aware of:
- The requested stability fee shall be DSR + 3%, but will be capped at LIBOR + 5%. Should MKR holders wish to raise the stability fee to a rate greater than LIBOR + 5%, 120dB Films will require 90 days notice.
120dB intends to use MIP21 to transmit Dai to and from its Vault in an operationally secure fashion.
RWA Company LLC will fulfill any reporting requirements established by the MKR holders in the onboarding process and will provide assurances around any private data.
See “Overview” in section 1.
4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
120dB Films is a licensed lender in the State of California. All loans will be arranged or made pursuant to the California Financing Law.
10. (Determined by Legal Domain Team) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
All documents pursuant to the operation of this Vault will be subject to a legal opinion by relevant attorneys. RWA Co. will provide an assurance to MKR holders that it has witnessed this legal opinion.
11. (Determined by Legal Domain Team) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
See “reporting” in Section 2.
13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
N/A - see “Structure” in Section 2.
We have thus far received the “red flag/screening” portion of the background check. This report contains the most critical information in the check, but we have contracted a full public review as well. We will update this post should anything be discovered in the full public review that we believe is problematic for the client’s application.