It’s a tale of two film finance groups, but it reads more like a “B” movie script.
That’s what Hollywood finance insiders were saying last week after Imperial Bancorp announced it is spinning off its Lewis Horwitz Organization and some other operations into a separate public company with the temporary name of “SpinCo.”
Imperial Bank officials portrayed the move as a strategic one designed to enhance shareholder value by giving more autonomy to the Horwitz group, which specializes in financing small-budget films.
But insiders at other film-financing banks said privately that the move also is being equally driven by an intense and sometimes unpleasant rivalry between Horwitz and Imperial’s other entertainment finance division, which will not be spun off.
Lewis Horwitz founded his company 16 years ago. In 1989, it was acquired by Imperial to complement the bank’s own entertainment finance group, which was relatively inactive at the time.
In the years that followed, Morgan Rector became head of the Imperial Entertainment Group and capitalized on Horwitz’s knowledge of film finance to enter the production-finance arena. (Previously, Imperial Entertainment had been primarily limited to providing business banking services to entertainment clients.)
Both the Horwitz group and Imperial Entertainment have emerged in recent years as financing leaders for lower-budget independent films. Imperial Entertainment has more than $200 million in commitments to entertainment organizations, while the Horwitz group’s loan portfolio is currently about $100 million.
A rivalry soon developed, according to bankers from the close-knit film finance community.
“It’s been widely recognized that the two groups Lewis Horwitz and Imperial’s own entertainment division are in direct competition with each other,” said Ken Whiting, manager of entertainment banking at Sanwa Bank California. Prior to joining Sanwa, Whiting was a member of the film finance group at First Interstate Bank, which was a major film-finance player before being acquired by Wells Fargo Bank last April.
Another entertainment financier was more direct: “It’s a very bad relationship between the two of them. There’s a lot of resentment. I think Lew feels Morgan hasn’t been around very long, and (Morgan) benefited a lot from his (Lew’s) knowledge, especially about foreign distribution companies,” said the source.
Imperial officials and Horwitz himself acknowledged there was competition, but they said that relations between the two groups remained mostly cordial.
Horwitz said that a certain competition had developed between himself and Rector, but he denied that the rivalry had anything to do with the decision to spin off his group into a separate entity.
“Whenever you have competition between two divisions of the same company there’s going to be this kind of talk. But the truth is, there’d been talk of a spin-off for a long time.”
“He’ll take one of my clients and people will hear about it and this kind of thing starts getting around, so you get that kind of talk. But that doesn’t mean that we all aren’t friendly competitors,” Horwitz said.
Imperial’s decision to spin-off the Horowitz group and other units is a relatively recent one, according to Robert Franko, chief financial officer at Imperial and future president of the new SpinCo.
Franko said Imperial had been considering merging the two rival entertainment groups into one unit as late as the end of 1996. The merger was subsequently aborted when another spinoff-related conflict emerged, Franko said.
The conflict involved Imperial Bancorp’s large stock holdings in Imperial Credit Industries, a specialty finance company that was formerly part of Imperial Bancorp. Imperial Credit was spun off from Imperial Bancorp in 1992, but the former parent has retained a 25 percent equity stake in Imperial Credit.
Franko said the Securities and Exchange Commission was “uncomfortable” with the post-spin-off relationship because banks are not allowed to own stock in non-banking companies under SEC rules.
“Rather than have a misunderstanding, this (spin-off) gave us the opportunity to put the Imperial Credit stock” in a non-bank company SpinCo, he said. Imperial Bancorp will not hold any equity position in SpinCo.
The Horwitz group will act as one of the SpinCo’s main operating businesses, while the Imperial Credit stock will become a company asset.
In addition to the Horwitz Organization and the Imperial Credit stock, SpinCo will include Imperial Bancorp’s small-business lending division.
Franko characterized the pairing of the Horwitz group and Imperial’s small-business lending division as a strategic move designed to put two of its specialty lending divisions together under one roof in an independent, non-banking company.