Though they have swank offices in Beverly Hills-nestled among palm trees and shops selling Gucci, Cartier, and Christian Dior- bankers who finance the film industry insist their jobs are not glamorous.

"To us, it's like financing a widget manufacturing company," said Anna Bagdasarian, vice president and manager of Unionbancal Corp.'s entertainment unit. "It's fairly mundane and prudent."

The business, however, is getting decidedly more competitive. With a greater number of bankers running after a limited number of movie producers, lender creativity-and the attendant risk-have multiplied considerably.

Consider "gap finance," Hollywood's hottest financing trend.

Under this scenario, bankers try to estimate revenue from geographic markets where movie distribution rights have not yet been sold. Because most film loans are collateralized against contracts with well-established distributors, estimating how much a film will be worth in, say, Scandinavia is a murky but high-reward business.

"This is a difficult concept for bankers," said Lawrence N. Da Silva, a senior vice president at Beverly Hills-based City National Bank. "We're trained to analyze sources of repayment in a very tangible way. We like to see contracts."

Such lending is the latest development in a business that has evolved steadily since BankAmerica Corp. founder A.P. Giannini helped bankroll United Artists Pictures in 1923. (See related article below.)

With the exception of Wells Fargo & Co., California regional banks have been lending to the movie studios and to independent film makers for years. It is a lucrative business, bankers say, and for some of the smaller Southern California banks, it is vitally important to the bottom line.

Movie loans in the $5 million to $10 million range are made at 50 to 250 basis points over the London interbank offered rate. Fees run from 1% to 5% of the loan amount.

Mr. Da Silva, who created a film finance unit for First Interstate Bancorp in 1986 before moving to $4.2 billion-asset City National, said that, starting in the 1930s and '40s, bankers could make fairly lucrative loans to the movie industry in agreements called "negative pickup"-taking no box office risk at all.

Lenders "never discussed the script, the stars, the director," Mr. Da Silva said. "But in gap finance, you have to be much more involved in that. Are they players? Will they continue to provide product in the future? Who is selling the film? Is it a strong sales agency?"

Negative pickup transactions are made with producers who have presold their film rights, usually to a major studio. The deals are straightforward, heavily documented, and protected by a completion bond from a major insurer. The bank gets repaid when the film is finished and the celluloid negative is literally "picked up" by the studio.

Some California banks, like Unionbancal, which has funded 100 films in the last five years including "Fried Green Tomatoes," "Smoke," and "The English Patient," still do most of their movie financing on a negative pickup basis.

Ms. Bagdasarian, who has financed 150 films, described it as a very straightforward business. "We are generally indifferent to how films do at the box office."

Unionbancal often makes short-term loans of about $10 million per film, which are repaid when the negative is delivered to the distributor.

"Technically speaking," she said, "the bank has a lien on the film rights. We can stop distribution if we haven't been paid."

Ms. Bagdasarian has had only one production company default in her 11- year career as an entertainment lender: "Iron Eagle 3," a film made by Carolco Pictures Inc. for $9 million in 1992.

Carolco, famous for making the "Rambo" and "Terminator" pictures, went into bankruptcy in January 1995. The former Union Bank took control of "Iron Eagle 3," arranged its distribution, and ended up with an $800,000 profit.

Ms. Bagdasarian stressed that "Iron Eagle 3" was an isolated case and, in the end, made money for the bank.

The experience certainly didn't deter Unionbancal from film finance. Movie funding and other sorts of entertainment credit make up 20% of its loan portfolio. The $28.7 billion-asset banking company funds films at the rate of about one and a half per month; it has eight movies currently in production. Executive vice president Craig W. Dougherty estimated that Unionbancal invests about $1 billion per year in film finance.

At $3.3 billion-asset Imperial Bancorp, entertainment lending is the most profitable division, contributing nearly 15% of the bottom line, according to Morgan H. Rector, senior vice president. His entertainment industries group made $7 million of operating income last year with no losses, producing a 36% return on equity.

Not all of those earnings come from financing films directly-the group also lends to satellite companies, distributors, movie trailer makers, film equipment businesses, and multimedia companies. But Mr. Rector insisted that Imperial is "doing more single-picture film transactions than anyone else out there." Currently, it has 20 loans outstanding on films with budgets that range from $5 million to $15 million.

Part of Imperial's success in the business is due to the Lewis Horwitz Organization. Bought from an insurance company that went into receivership in 1989, Lewis Horwitz is the king of "B" film finance.

His specialty is what Mr. Rector called "wildly aggressive" lending to low-budget movie producers who need a quick $2 million to make a late-night horror film that pays back in six to nine months.

Rivals and colleagues said Mr. Horwitz knows every small-time distributor and producer in the business, particularly the ones who make good on their commitments.

Though Mr. Rector's group and the Lewis Horwitz Organization occasionally compete against each other, Imperial is committed to keeping Horwitz a separate entity. In fact, Imperial plans to distribute stock in the Lewis Horwitz Organization and some other businesses to its shareholders sometime in the next three months, creating a separate financial services company. "It's hard to believe you'd ever want to retire the Lew Horwitz name," Mr. Rector said.

Mr. Horwitz's vaunted knowledge and long-standing relationships in the film business are particularly valuable now that the yield in negative pickup finance has decreased.

In the 1980s, City National's Mr. Da Silva said, independent producers were no longer willing to give up control of distribution and copyrights to the major studios. Instead, the rights were segmented and sold in pieces to the domestic and international markets and to television networks and cable companies.

Banks remained able to keep box office risk off their books, however, because film loans were collateralized by segment contracts and by letters of credit for overseas deals.

But in the 1990s, U.S. banks began to get cut out of the loop. As the international market grew in importance, producers would sell their rights country by country, using foreign bank financing. This coincided with U.S. fear of foreign loan exposure, Mr. Da Silva said, and a redefining of credit policies to focus on core businesses.

"International banks began to eat our lunch," Mr. Da Silva said.

Now, of course, the race is on to get back into the business, allowing many producers to get gap financing, to borrow without having every market sold in advance.

Although some financial institutions are willing to lend 100% of a film's costs based on gap financing, most won't back a producer who has not sold more than 30% of his markets. In addition, most banks would demand a 2:1 coverage rate for the gap from the countries that have already been contracted.

To assess the gap, bankers use historical data to figure out how much revenue a geographic area will produce. Banks use country-by-country models, their own movie financing experience, and statistics from the American Film Marketing Association and the Motion Picture Association of America.

To Mr. Da Silva, "this is an art, not a science. Or an imperfect science at best."

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