As with all investments of this nature, invested capital is at risk. We have set out below what we consider to be the key risks of investing in the Bonds.
Please note, these are not all the possible risks associated with an investment in the Bonds. There are additional risks and uncertainties that are currently either unknown to Bird Box (such as changes in legal, regulatory, or tax requirements), or that Bird Box currently believes are immaterial. These may also have a material adverse effect on the Bonds.
KEY GENERAL RISKS RELATING TO THE BONDS
Capital is at risk
The Bond is an investment not a deposit. Investor’s capital is at risk. Bird Box will seek to minimise risks but Investors should be aware that returns are not guaranteed and you may not get back the amount invested.
The past performance of Bird Box or any of its directors, partners or Associates or companies or funds which they have managed or invested in is not a reliable indicator to the future performance of the Company.
The Company is not yet listed on any stock exchange so Bonds cannot easily be sold. Also, as the Company is unlisted it is not subject to all the rules and regulations that apply to listed companies. The Company operates a limited liquidity pool to fund early redemptions of the 5-year Bonds but this is subject to available cash and Directors’ discretion so the ability to redeem early cannot be guaranteed. In any event, Investors should assume they will need to hold Bonds for the full term.
An investment in the Bonds is an investment in a single company, although the funds will be used to make secured loans to numerous entities for project finance across various sectors in the media and entertainment industry. Nonetheless, we recommend that Investors’ funds are invested in a number of different investments in different sectors and instruments to spread their risk and avoid over concentration.
Financial ombudsman service and financial services compensation scheme
The Offer is not covered by the Financial Ombudsman Scheme unless the Investor receives advice from their authorised financial adviser as to the suitability of an Investment. Only individuals and micro enterprises (a business with an annual turnover of less than two million euros employing fewer than 10 employees) are eligible to bring complaints to the Financial Ombudsman Scheme and there are financial limits on the amount that the Financial Ombudsman can award.
The Company is not authorised under FSMA, and Investors will not be able to claim under the Financial Services Compensation Scheme for any loss suffered from the Investment.
Estimations and assumptions
Where we have made or relied upon third party estimates, forecasts or projections of anticipated revenues, asset values, cost, or inflation, these are based on what we believe to be reasonable at the date of this IM. These statements may involve known or unknown risks, uncertainties and other important factors, which could cause actual performance to differ from those we expect. While we believe that any predictions or forecasts given are reasonable and based on reasonable assumptions supported by objective data, they may be affected by risks and other factors not set out in this IM and therefore are not reliable indicators of future performance.
KEY PROJECT SPECIFIC RISKS RELATING TO THE BONDS
Bird Box will generally restrict loans to those where the ultimate borrower has granted no security to another party which ranks ahead of the security granted to Company. Where the Company co-lends, it will generally do so on the basis that its security ranks equally with its co-lenders on a pari-passu basis. On some occasions, however, where the Directors believe the commercial opportunity and risk profile is justified, the Company may lend to a Borrower who will also raise additional debt from a bank or another commercial lender who will lend on preferential terms. In such instances, the Company’s security on the assets of the Borrower is likely to be second ranking and accordingly on an event of the default of such a Borrower, the proceeds of any enforcement action will go firstly towards repaying the outstanding amount owed to the lender with first ranking security before the Company receives any outstanding amount. This might ultimately impair the Company’s ability to pay interest on the Bonds and repay capital sum to Investors.
The Company may fail to meet its financial obligations for a variety of unanticipated reasons. For example:
- the assets against which the Company’s loans have been secured might prove to be worth less than anticipated and the Lender may not be able to recover the total amount lent in circumstances of default;
- a distributor may not fulfil its contractual obligations;
- in the case where the Company has advanced a loan to pre-finance a production company’s film tax credits, HMRC may subsequently find those tax credits not to be due and payable;
- in the case where a film is being financed, the project may not be delivered, which subsequently would have a detrimental knock on effect with the associated sales agency and distribution contracts – if these contracts cannot be fulfilled, sales estimates for the film or TV series will not be achieved, and the Borrower may not be able to repay the loan.
Any of the foregoing risks could ultimately lead to failure by the Company to make interest and capital payments to Bondholders as they fall due, or at all.
Alleviation of risk
To protect against these risks:
- the Company will only contract with reputable distributors whose creditworthiness has been established;
each film will have a Completion Bond who will guarantee delivery of each film;
- the Company will only work with an approved Sales Agent with an established track record of meeting their sales estimates or at least 50% thereof and at least sufficient to repay any bank borrowings secured thereon;
- other security will usually be sought from the Sales Agent and producers to cover any shortfall including security over any excess production tax credits due from Governments and other revenues from other productions due to the Producer and/or the Studio together with personal guarantees as appropriate,
- an independent accountant’s opinion letter which validates the availability of tax credits that the Company lends against will be sought in each case and can be sued upon in the event of non-payment;
- the Company will take a charge over the escrow account and collections account containing the contracted and to be contracted sales revenues of the films and also a debenture over the production entity; and
- where security is being taken over the unsold territories of the film, sales estimates for these unsold territories must be at least 200% of the investment net of the interest reserve and the Company will require each Distributor to assign the benefit of the contract to the Company such that the Company will have the ability to take control of the sales of unsold territories.
Conflicts of interest
It is anticipated that some of the lending opportunities may be to Borrowers to whom Bird Box or its Associates may provide services to the Company and the Subsidiary. The beneficial owners of the Company may also have an equity or other interests in the Borrowers and some cases the Borrowers will be wholly owned by the beneficial owners of the Company.
To mitigate the risk of a conflict of interest between the the interests of the Bondholders/the Company and Bird Box or its Associates, any contract or arrangement between the Company or the Subsidiary with any Bird Box entity and/or with a Borrower which is connected to a Bird Box will only be entered into if such contract or arrangement meets the conflicts of interest policy and has been approved in writing by the Independent Director.