Bond, Completion Bond

Imagine a world that is deprived of seeing Jason Statham as a revenge-obsessed former government operative wreaking particularly violent havoc on a gang of cyber criminals who victimized his only friend. Without completion guarantee insurance for independent film productions that world would be ours.

(For those interested, the movie is The Beekeeper, a feel-good hit of 2024 that pushes its central metaphor to extended and hilarious limits.)

Hundreds of independent films are produced each year across the globe. And while they don’t have superhero sized budgets in the hundreds of millions of dollars, they are big business—the 10 top-grossing independent films of 2023 earned a record-high $1.6 billion in revenue, Statista reports.

Major studio productions are primarily funded with the company’s own money and commercial debt. The list of financiers for independent films is significantly wider, encompassing commercial lenders, film funds, private investors, co-financing by production and sales companies, and tax incentives by states or nations seeking to draw productions within their borders, says Janet Comenos, entertainment practice lead for the CAC Group and until recently CEO at film and television bonding MGA SpottedRisk. Without the financial resources of mammoth studios behind them, it’s crucial that these movies stay on budget and on schedule.

While films require many types of insurance, such as general liability and workers compensation, a completion bond is an additional tool for a movie’s investors to mitigate their exposure and protect their money. It serves as a contract between the producers, financiers, and bonding company that commits to meeting a schedule and budget for the production.

International distribution deals are a common form of collateral for the loans to make these movies, says Steve Mangel, co-founder and president of UniFi Completion Guarantors, which provides completion bonds that guaranty independent films, television series, and new media productions. But distributors only pay the large majority of their “minimum guarantees” upon receiving the film based on their schedule for delivery, among other specifications.

“These guarantees are mandated by third-party financiers to protect their investment since recoupment depends on successful completion and delivery of the film,” Comenos says. “It’s critical to understand that a film is their asset, and if it’s not completed, they have nothing to recoup from. As such, the completion guarantee is a critical lynchpin of the independent film ecosystem.”

Completion bonds are employed almost only for independent films, but a large majority of independent productions use them, she adds. A small handful of companies specialize in this market segment, according to Comenos and Fred Milstein, CEO of one of those businesses—Media Guarantors, which provides completion bonds for film and TV production.

The West Hollywood-based firm, founded in 2018, each year provides underwriting and bonding for at least 40 to 50 films. That covers high-profile movies with varied budgets, including The Beekeeper, CODA, which won several Academy Awards (including Best Picture) in 2022, and the Daniel Craig-led mystery Knives Out. In September, broker CAC bought Media Guarantors from SpottedRisk. (Two months later, Deadline reported the sale of another big name in the completion bond industry, Film Finances, to an investor group whose backers include insurance companies Haymarket and Silac.)

Media Guarantors primarily provides guarantees to films with budgets above $5 million. The average budget is $22 million, though it is currently working with a production with a budget approaching $100 million, Comenos says. The company’s completion guarantees have a general minimum limit of $5 million but can go as high as $100 million, or even possibly higher based on the project.

Calabasas, California-based UniFi is an exclusive managing general underwriter that writes the bonds solely for Canada based carrier Intact. Since 2013, UniFi has bonded films with budgets of up to $150 million, with productions ranging from the Oscar-winning The Power of the Dog to the comedy Joy Ride, says Mangel. Its average is between $15 million to $20 million. “So it’s not necessarily all small pictures. It’s just pictures that are being produced outside of the studio system,” Mangel says.

Below a budget of $5 million, a film production generally will not use a completion bond, says Laird Criner, a partner at New York-based broker Film Emporium, which specializes in film and entertainment coverage, including movies at that budget level. Instead, the productions will pay for extra expense coverage for issues such as reshoots, bad film stock, and mechanical failures or property damage, Criner says.

Underwriting Scrutiny

The process for preparing a completion bond is long and extensive. UniFi reviews the key parts of a movie’s production elements, from budget to cash flow and schedule to personnel experience, before it begins formal underwriting. The company’s production-specialist representatives—some with experience as line producers themselves—meet with members of the film team during this period and provide recommendations on the budget, necessary experience levels, and other areas. That could involve discussion of sections of the script that appear insufficiently budgeted or maybe not budgeted at all, Mangel says.

“When you read a script, you know there’s going to be a scene in there that probably can be shot for $10,000 if you do it one way or $100,000 if you do it another way,” he says. “And we need to hear from the producers and the director themselves as to how they plan on going about their production.”

At Media Guarantors, which is backed exclusively by AXA XL, underwriting for a completion bond happens months before the start of filming, Milstein says.

Among the issues to be analyzed by the team of specialists: that the budget accurately reflects the demands of the screenplay to avoid underestimating costs and increasing the potential for claims; that the schedule for delivering the film is realistic; and that all participants— including the producers and director— understand their responsibilities and the measures the completion guarantors can take to ensure a successful project.

“Our underwriters meticulously review budgets, scripts, and schedules to assess feasibility and identify potential risks,” Milstein says. “If the budget appears insufficient, we require additional financing if we are to proceed in issuing the completion guarantee. Similarly, if we find inadequacy of the shooting schedule and there are not enough days to actually complete the work in the script, for example, we will insist on the production adding more time. If they don’t address our concerns, we won’t issue the bond.”

While the goal is always to come to an agreement, both Media Guarantors and UniFi have refused to issue a bond to films, based on concerns over the script, budget, schedule, and experience of the production team. That could happen in 20% to 30% of the projects UniFi considers, Mangel says.

“Budget size with contractual and/or legal requirements tend to be the guiding factors for determining the final option” for coverage, says Criner, whose firm insured about 150 independent features in the past year.

Risk tends to concentrate during filming, which generally lasts 25 to 40 days, along with post-production as any visual effects are added and the movie is readied for delivery, Milstein says. “This stage requires extra involvement and careful control,” he adds, including a producers production insurance package that is required outside of the completion bond.

The primary issues during filming are productions that fall behind schedule or departments that overspend their budgets, Milstein says. Films with significant amounts of action scenes or visual effects can also increase risk, Mangel notes. But unexpected risks to a movie’s progress can range from inclement weather to costs that had not been considered ahead of time.

Scrutiny remains intense throughout filming. Completion guarantors review the daily call sheets, which lay out each day’s production plan, as well as the previous day’s production report, which details the previous day’s progress. To determine whether the film is on budget, they review cost reports and conduct weekly cost report meetings with key members of the production team, including the accountant. Team members will also visit the set as needed.

Even one day’s overtime pay to film the scheduled scenes could be cause for concern, Mangel says. Bonding companies would want to determine if that was a one-time instance or potentially a continuing issue that could threaten the budget and schedule.

“We try to stay a week or two ahead of the production in terms of projecting where we think the show is going in various categories,” Milstein says. “Our job is to make sure the train stays on the tracks.”

By contract, the bonding company has significant control over the non-creative aspects of the production—meaning it can’t change the script but can demand that personnel be replaced or that the schedule be changed. Media Guarantors also controls the production financing, with an escrow account through which funds are distributed on a weekly basis. Taken together, those elements give the bonder what Milstein calls “a big stick.”

UniFi has similar “takeover rights,” Mangel says—the authority to assume control of aspects of a troubled film if it cannot come to terms with the production team on the necessary approach. That could range from providing more specific guidance to a director on a day’s filming to firing the director. “It’s rare, but it does happen.” Scenes that appear to be underbudgeted might be held for late in production to determine whether there is actually enough money to film them.

Pricing for completion bonds has been stable for a half-decade, Milstein says. However, clients might have to pay for extra coverage to film in regions that come with additional risks—for example, political instability or elevated danger of a natural catastrophe—before a guarantor will sign off on a bond.

Pricing generally comprises 2% to 3% of the film’s budget, Mangel adds. A higher budget means even a lower percentage will still cost more: for example, 3% of a $5 million film would generate pricing of $150,000, while 2% of a $30 million film would come out at $600,000.

Claims from financiers for failure to deliver a film on time or budget “are relatively infrequent and typically low to moderate in severity,” Comenos says. She cited a case in which a completion guarantee was bound a week before Brexit took effect in the United Kingdom. Suddenly, the price of lumber, gasoline, and other key material skyrocketed. Together, Media Guarantors and the production were able to reduce postproduction expenses and slice the claim size by 40%, she adds.

Bond companies will take all steps possible to ensure a film is delivered, including putting forward their own money in the form of “completion sums” intended to be recovered from proceeds for the film’s sale and distribution, Mangel says. A production would have to spend its entire budget—including a contingency set-aside usually of about 10% required by guarantors—before the bond company would provide any money to complete a film, according to Mangel.

“You have to be able to make your vision, but only with the resources that are available to you,” he says. “So that’s what we’re trying to accomplish. And I think for the most part, on every film, everybody’s pulling in the same direction. We all want the same thing.