Marvel Launches Independent Film Slate

Marvel Enterprises, Inc. announced today the completion of a $525 million non-recourse debt facility which will finance Marvel’s production of up to ten films based on characters from its famous stable of comic book characters, including Captain America, Nick Fury and The Avengers. Paramount, a unit of Viacom, Inc., will distribute the film slate, with the first theatrical release expected for summer 2008. This transforming arrangement gives Marvel complete creative control, the ability to build a film library and greater profit potential than it has received from films licensed to other studios. To reflect this major expansion of its Hollywood presence, Marvel will change its name to “Marvel Entertainment, Inc.”

These film production activities, to be carried out by subsidiaries of Marvel Studios, Inc., will complement existing and future film projects licensed to other studios. Marvel has a strong track record of working closely on Marvel character-based films it has licensed to other studios, such as Sony Pictures, 20th Century Fox, New Line Cinema, Universal Studios, and Lions Gate Entertainment. In 2006, Marvel anticipates the release of Ghost Rider, X-Men III and Punisher II through Sony, Fox and Lions Gate, respectively.

The seven-year, $525 million facility was arranged by Merrill Lynch, Pierce, Fenner & Smith Inc. and consists of $465 million in revolving senior bank debt and $60 million in mezzanine debt. Both S&P and Moody’s have given the senior bank debt an investment grade rating. In addition, Ambac Assurance Corporation has insured the senior debt, raising its rating to AAA. MVL Film Finance LLC, a special purpose, bankruptcy-remote subsidiary of Marvel, will be the borrower under the facility. That subsidiary has pledged the theatrical film rights to the ten characters included in the film slate as collateral for the borrowings. The borrowings are non-recourse to Marvel Enterprises, Inc. and its other affiliates.

Avi Arad, Chairman and CEO of Marvel Studios, commented: “The film slate financing enables us to evolve our entertainment operations into film production, an area where we have experienced past success with our partners and which offers significant profit potential for our company. The characters involved are some of the most valuable in the Marvel Universe, and we are excited to launch them as consumer brands via feature film releases under our direction. We look forward to working with Brad Grey and the exceptional team he has put together at Paramount and are confident that this will be a successful venture for us both.”

Brad Grey, Chairman and CEO of Paramount Pictures, commented: “Marvel has emerged as one of the strongest, most successful entertainment brands around the globe, with an enviable track record in feature films. We are excited to be working with Marvel on this new business.”

“Merrill Lynch is pleased to have worked with Marvel in structuring and arranging this innovative and unique financing,” said Michael Blum, head of global structured finance at Merrill Lynch. “Obtaining a vast majority of financing at the AAA rating level backed by the intellectual property value of ten Marvel characters plus the movies created by Avi and his team is at the cutting edge of entertainment structured finance techniques.”

Funds under the facility will be used for the production of films. Marvel will receive a gross participation on all revenues from the facility as the producer of each film and will retain all of the film-related merchandising revenues. These merchandising revenues and the gross participation are neither pledged as collateral nor subject to any cash restrictions under the facility. Marvel will also receive all profits, including all revenue streams (including box office receipts, DVD/VHS sales, television, and soundtrack sales) after film costs, distribution fees, marketing, principal repayment, and interest. In addition, Marvel will have the ability to build its own film library through this initiative.

Marvel’s distribution agreement with Paramount guarantees distribution for 10 films and encompasses two prime release periods each year – the spring/summer and fall/holiday seasons. Paramount has guaranteed Marvel wide distribution with commensurate advertising and marketing efforts. This is a worldwide arrangement with the exception of Japan, Germany, Australia/New Zealand, Spain and France, which Marvel will sell directly.

The ten Marvel characters in the arrangement are Captain America, The Avengers, Nick Fury, Black Panther, Ant-Man, Cloak & Dagger, Dr. Strange, Hawkeye, Power Pack and Shang-Chi. Each film is expected to have a budget of up to $165 million dollars and a rating no more restrictive than PG-13. Although the financing allows for the production of animated films, Marvel currently intends to use the financing to make only live-action films.

Marvel will fund initial development including scripts for each production. Once a film is “green lit” (approved for production), the facility will reimburse Marvel for these costs. Marvel Studios will oversee the slate and has sole green light control. Unreimbursed overhead expenses and any unreimbursed development costs represent Marvel’s only direct financial risk. The operating results for the film slate will be consolidated with those of Marvel and separate segment disclosure will be provided in Marvel’s periodic financial reporting. However, there are restrictions on the cash generated by the films that will prevent Marvel from withdrawing any profits until after the release of the third film, and then only if financial tests are met. As is consistent with Generally Accepted Accounting Principles, the costs of each film will be capitalized until theatrical release.

Relativity Media LLC assisted Marvel with the structuring of the financing.

Source: Marvel Entertainment, Inc.