Why Carlyle is making big private credit investments in Hollywood companies like ‘Bohemian Rhapsody’ producer New Regency

• This summer, Carlyle made a private loan of $175 million to the production company New Regency.
• The investment will help New Regency with its content development and licensing efforts.
• It comes at a time when private credit lenders are expanding their strategies in the entertainment and media industries.

Carlyle, the Washington, DC-based private equity and credit firm, closed a $175 million term loan to New Regency this summer, an independent production company with a library of over 100 films ranging from “12 Years a Slave” and “Bohemian Rhapsody” to “Mr. & Mrs. Smith.”

Carlyle’s global credit division provided the funding, which managed $150 billion in assets last year and has invested $3.6 billion in sports, media, and entertainment over the last five years.

The New Regency loan “is a refinancing and upsize of an existing Carlyle credit facility,” according to the firm, and will support the 32-year-old production company’s development of new IP as well as its efforts to license library content to streamers and other distributors.

According to Ben Fund, managing director on the Carlyle Credit Opportunities team, the investment speaks to Carlyle’s underlying thesis in this space. Bloomberg reported that Carlyle is in talks for a similar loan of around $800 million with Park County, the media company founded by “South Park” creators Trey Parker and Matt Stone. According to Bloomberg’s sources, who requested anonymity to discuss a private transaction, the deal is not final and could change.

Carlyle’s increased activity in this area indicates a prudent strategy in these volatile times. This year, Hollywood has been roiled by two major labor actions: the 148-day writers’ strike and the ongoing actors’ walkout, which have cost the California economy billions of dollars, reduced the entertainment industry by approximately 45,000 jobs, and demonstrated how vulnerable the economy for filmed entertainment can be. Countless productions have come to a halt, and many will not return.

However, investing in companies that have large amounts of library content is one way to gain access to the entertainment economy while hedging risk, as streamers continue to rely on library content to bulk up their offerings and keep subscribers from leaving.

“It’s amazing how much people love some of this high-quality content,” Fund said, referring to popular sitcoms and films from recent decades. It’s the kind of content that “people keep watching in the background,” he says, and it’s “really appealing to streamers.”

Streamers also need unique original titles to attract subscribers, but “creating new content is a lot more expensive and risky than licensing content,” according to Fund. “There’s a reason why Netflix spends more than half of its money on originals and just under half on licensed in-season content.” As a result, they clearly understand the importance of striking a balance.”

Arnon Milchan, a controversial Hollywood mogul, founded New Regency in 1991, and it is now run by his son, Yariv Milchan. Its most recent film, the sci-fi thriller “The Creator,” has grossed $79 million worldwide. Its upcoming “The Bikeriders” has a star-studded cast (Austin Butler, Jodie Comer, and Michael Shannon) and Oscar aspirations. From “Bohemian Rhapsody” to “The Revenant,” the company’s library includes several films that received both critical acclaim and box office gold — it’s also heavy on romcoms and holiday classics.

“We’re really coming at this thesis of, ‘I want exposure to good content,'” says Carlyle. And if I can’t get it by owning the underlying IP, I’ll get it by lending money to the service provider or tech ecosystem that facilitates the creation of that content,” Fund added.

Developing strategies to help Hollywood weather turbulent times

Carlyle’s big moves come at a time when private asset managers are ramping up their lending in Hollywood.

Despite historically high interest rates, some media companies have sought to incur debt in order to avoid selling equity stakes to private equity or growth equity investors. Wall Street banks have reduced their lending exposure as market volatility has increased, reducing their risk appetites but creating a gap for cash-rich asset managers with strong risk appetites to exploit.

With higher interest rates and headwinds in the media sector, some experts have raised concerns about rising borrowers’ defaults — but Fund said he hasn’t seen that among the companies Carlyle backs.

“You have tightening credit or lending standards, which is creating a void in the market,” the Securities and Exchange Commission said. “Let’s just take the premise that family and founder-run businesses have historically not had good access” to credit, he continued, adding that “it’s only worse now.”

According to Fund, this creates opportunity for Carlyle, and such companies often have “real pride” and a “real legacy” to uphold. “The idea of losing your family business after 50 years, because you went through a recession — that’s just not something that many of the people we partner with are interested in.”

Beyond New Regency, Carlyle’s credit platform has backed a number of family-owned businesses in the media sector. Clair is a media technology company that specializes in live production services and audio products. Content Partners, an investment firm that buys the rights to past film IP and has amassed a library of hundreds of titles, is another portfolio company in the entertainment sector. Carlyle has also invested in other entertainment heavyweights such as ICM Partners, the former Hollywood talent agency purchased by CAA in a $750 million deal last year.

“We are very focused on partnering with the right kinds of partners that are going to support the business through obviously good times, but challenging times,” the Fund said. “We can develop an appreciation for their business, we can be a meaningful capital partner,” he went on to say, “and we’re happy to spend the time to really dig into and diligence the underlying operations.”