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Screentrade Magazine Article: Renovation Financing

February 1, 2016

Want to upgrade your theatre(s) but have difficulty securing the financing?  Using a generic outline, EFA Partners shows how, by refinancing all existing debt, too, the needed renovation sums can be obtained much more readily.

Not too long ago, amenities such as in-theatre dining and luxury seating were considered as short-term trends ripe only for certain markets. But that’s no longer the case because (almost to a town, now) theatres are being upgraded to provide more comfortable movie-going than can be experienced at home. Of course, theatre-upgrades are certainly costly, and thus financing is an issue. And while the large circuits enjoy ready access to capital, the same isn't typically the case for smaller operators.

So, let’s consider the example of an exhibitor with four profitable, eight-screen theatres, all located in small-to-mid-sized markets. Let’s also assume the operator owns the real estate at two properties while the other two are leased. To boost market-share, the operator decides to renovate and upgrade each theatre with luxury seating, the renovation coming in at $3m. Given that lenders may not favourably consider a loan for just the renovation without other collateral, the exhibitor’s approach could always be to seek a larger loan that would then refinance all ITAL existing debt while providing funding for the needed renovation, too. This approach could be more attractive to lenders as the loan would be secured by most, if not all, company assets.


So, for this scenario, let’s assume the total existing debt of $7m comprises two $3m real estate mortgages plus equipment loans totaling $1m. An interested lender would review all exhibitor assets, which could involve getting new appraisals for the owned properties. The appraisals could be done on an 'as completed' basis such that the value of the renovation is taken into consideration.

Let’s assume the appraisals resulted in the theatres being valued at $16m -- a good outcome given that banks will consider lending 60-65% of appraised value. The operator could then close a loan of $10m which, in today's market, could see interest rates in the 4-5% range. $7m could be drawn at close to refinance the existing debt with the remaining $3m drawn down over time as the renovation is completed.

Maintaining market share is key for today’s exhibitor, with competition now being more prevalent than ever as more theatres are becoming renovatedand home-viewing options are getting enhanced. While significant capital may be required for upgrades, exhibitors should examine their markets to determine if theatre enhancements are necessary to maintain or grow profitability.

Leading provider of digital media services for film and television

Background: Seasoned management team formed new film and television digital media services company and approached EFA to arrange financing for potential acquisition targets.

EFA Process: The company retained EFA to arrange acquisition financing and EFA approached several banks and specialty lenders.

Result: Closed debt financing to support two company acquisitions

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Television broadcast company owning and operating WGGB-TV and WGGB-TV D2, the ABC and FOX network affiliates serving the Springfield-Holyoke, MA market

Background: Initially approached by Gormally Broadcasting to arrange financing to recapitalize the company and fund planned acquisition growth. EFA became company’s sell-side advisor when industry changes and market forces made exploring a sale a more advantageous and financially rewarding strategic option for the company.

EFA Process: EFA was successful in securing financing commitments to fund a recapitalization and several acquisitions during the initial engagement focus. However, marketplace dynamics noted above resulted in EFA recommending a company sale. EFA provided a tailored, results-oriented approach from start to finish.

Result: EFA identified Meredith Corporation (NYSE: MDP) as the leading buyer and managed all aspects of the sale, maximizing the sales price received for the company.

start quoteIt was a pleasure working with Dave Harrington and the team at EFA. Through Dave’s deep industry knowledge, relationships and marketplace expertise, we were able to maximize the ultimate value of our company’s broadcast assets. end quote

John Gormally,
Founder, Owner and President of Gormally Broadcasting

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Growing movie theatre company that provides an in-theatre dining experience with over 100 screens throughout the US

Background: Longtime client that initially approached EFA seeking junior capital to grow its business.

EFA Process: After reviewing the company's capital structure and growth plans EFA recommended a financing structure that would recapitalize the company and provide significant growth capital.

Result: Closed two financings that recapitalized the company and provided growth for new theatres. Studio Movie Grill remains an EFA client for M&A opportunities.

start quoteWe were delighted to work with the EFA Partners team on our second successful financing with them. Their wide range of capital markets experience, banking relationships and deep knowledge of the cinema and location-based entertainment industries made them the perfect choice to assist with our financing efforts, which support SMG's active growth strategy. end quote

Brian Schultz,
Owner, founder and President of Studio Movie Grill

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Television and motion picture post-production and digital content management services

Background: Company approached EFA seeking refinancing of its debt subsequent to other advisors attempting to do so with a combination of senior debt and equity.

EFA Process: After reviewing its capital structure EFA recommended a debt structure to fully refinance the company's debt.

Result: Closed senior debt facility that refinanced the company's existing debt, which was much more cost-effective than equity.

start quoteThe EFA team proposed a creative strategy to recapitalize Modern VideoFilm that met our needs in a way that was unique and different from what other financial advisory firms proposed to us. We appreciated their understanding of the entertainment industry and EFA's extensive financial relationships and we look forward to continuing our relationship. end quote

Moshe Barkat,
CEO and President of Modern VideoFilm

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Mark Cuban and Todd Wagner's well established movie theatre company - with almost 300 screens located throughout the US

Background: Landmark approached EFA for an equipment financing to convert its screens from 35mm to digital projection.

EFA Process: While the company had many financing options given its strong ownership, its management was busy with business operations and retained EFA to handle the digital conversion financing process.

Result: Closed equipment financing facility utilized for all of its digital projectors. EFA led all aspects of the financing including negotiation of complex digital cinema conversion agreements.

start quoteEFA's unique knowledge and experience with film exhibition and digital cinema was extremely helpful in leading our financing process. Landmark prides itself in providing the best customer experience to its patrons and we are excited that this financing will allow us to continue that with our digital conversion. end quote

Sky Hansen,
Chief Financial Officer of Landmark Theatres

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Growing upscale restaurant entertainment company with venues that provide dining, bowling, arcades and live entertainment

Background: Company approached EFA seeking capital to refinance debt at its inaugural location in Jacksonville, FL.

EFA Process: After reviewing its capital structure and growth plans, EFA recommended a two-stage approach to provide development capital and equipment financing for new locations.

Result: Initially, closed a financing to refinance debt at its existing site and provided capital to develop two new sites. Subsequently closed an equipment financing for the new sites. Latitude 360 remains an EFA client for refinancing and M&A opportunities.

start quoteWe're excited to continue our relationship with the EFA team. They understand the location-based entertainment industry and have deep relationships with financiers as well as strategic industry participants, all of which will help us execute on our growth plans. end quote

Brent Brown,
Founder and President of Latitude 360

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Television industry management group formed to manage and operate US TV stations

Background: Huntington approached EFA seeking capital for potential television station acquisitions.

EFA Process: EFA understood that private equity firms and lenders are seeking experienced management teams to back for acquisition opportunities in the television sector.

Result: EFA has introduced the company to several private equity firms as well as senior lenders, resulting in bids for groups of television stations and the company continues to seek other opportunities, with EFA’s assistance.

start quoteWe are acutely aware of the trends that are transforming the local broadcast TV business and have recently begun to explore opportunities to acquire stations. We are very excited about the prospects for the industry and the opportunities to capitalize upon. We are also pleased to have EFA Partners as our financial advisor as their many years of media industry experience and extensive financial relationships will help us accomplish our goal of building a best-in-class station group.

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David Tynan,
CEO of Huntington Broadcast Management Group

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