Completion
BondsA promise designed never to be kept

A completion bond, also called a completion guarantee, is a contract in which a specialist company promises a film's lenders and investors that the movie will be finished and delivered as planned, on schedule and within its budget, and that if it is not, the guarantor will either pay to finish it or repay the money that went into it.^[3][5]

The name is slightly misleading, which is a Hollywood tradition. Insurers usually stand behind it,^[3] but in practice it works like a chaperone with a checkbook. The guarantor reads the script, the budget and the schedule, decides whether the people involved can actually make this movie for this money, and then spends the production watching them try.

The deal has three corners. The financiers want to know the asset they are lending against will exist. The producer wants the money. The guarantor sits between them and gets paid to make the first group comfortable about the second.

The bond is there to protect the money. The beneficiaries are the lenders and investors. The producer is the risk.^[3][5]

This is why the bond company gets so many rights over a production it does not own. It can demand daily reports and cost statements, send a representative to set, approve or refuse spending beyond the contingency, and, in the language of most guarantees, step in and take over the picture if it goes badly over budget or falls far behind schedule.^[3][4] Some agreements also let the guarantor replace key crew, up to and including the director.^[4][5]

A producer signing a completion agreement is, functionally, agreeing to be supervised by the company that is betting against their failure. It is a strange relationship, and it is the one that makes bank financing possible. A bank lending against foreign presales or a tax credit is lending against the bond.^[5]

The bond company's commitment is measured against a number called the strike price. Roughly speaking, it is the budget the guarantor agrees to stand behind, including the production's own contingency and the bond fee, with certain costs left out. Marketing and publicity, for example, are often not part of what is guaranteed.^[3]

The fee itself is a percentage of that number. Entertainment lawyers have described typical rates of 2.5 to 3 percent, with larger budgets sometimes going lower.^[3] Rates were historically higher, and there was a period when guarantors offered to rebate part of the fee to productions that came in on budget, a practice that has mostly disappeared.^[3]

The detail that matters is the order of operations. The bond does not pay the first dollar of an overrun. The production pays from its own contingency first, often a reserve of around ten percent built into the budget^[5], and only when that is exhausted does the guarantor's money come in. By then the guarantor has usually been in the room for weeks, and its leverage over how the rest of the movie gets made has grown accordingly.

The completion bond is a British invention, and it was born out of a crisis. After the collapse of British film finance in the late 1940s, a company called Film Finances was incorporated in London in February 1950. Its founders were Peter Hope, an underwriter at Lloyd's, and Robert Garrett, a film producer who had been an RAF wing commander and had run the air section at Bletchley Park during the war.^[1]

That background fits the job. The man who invented the modern way of guaranteeing that a movie gets made had spent the war at the place where Britain broke German codes. If you were designing an origin story for an instrument whose whole purpose is to read an incomplete set of signals and predict whether a plan will survive contact with reality, you could not do better. A completion guarantor is a cryptanalyst with a production schedule.

The company's early archive reads like a film history syllabus. United Artists required a guarantee from Film Finances before it would back the first James Bond film^[1], and the archive preserves letters from producer Harry Saltzman to Garrett explaining why Dr. No was going over budget in Jamaica: the crews, the weather, the director's expenses.^[2] The guarantor ended up helping rescue it.^[2] Before James Bond saved the world, a bond company saved James Bond.

Every completion agreement contains the threat of a takeover. Almost none of them are exercised, and the reason is simple arithmetic. A guarantor that takes over a production inherits its problems, often including obligations to third parties that the producer used to owe.^[3] Taking over is the most expensive way for a guarantor to keep its promise, so it treats the clause the way a parent treats the phrase "I will turn this car around": a sentence that works best when it never has to be tested.

The famous exception shows why. When Terry Gilliam's The Adventures of Baron Munchausen fell badly behind schedule at Cinecittà in Rome in the late 1980s, Film Finances took over the production. By the company's own account, a $23 million budget roughly doubled anyway.^[1] Taking the keys did not make the car any cheaper to drive.

What guarantors prefer is influence short of control. A representative on set, a frank conversation with the director about which scenes can be cut, a revised schedule, a quiet word with the financiers. Most of the value of a completion bond is created in the weeks before anyone would ever reach for the takeover clause, when the guarantor's presence makes everyone a little more careful. Francis Ford Coppola, of all people, ended up with a Film Finances advertisement in Variety congratulating him for bringing The Outsiders in on schedule and on budget.^[1] Somebody at the guarantor clearly enjoyed writing that ad.

A completion bond is narrow. It generally does not guarantee the initial financing of the budget. If an investor fails to fund, that is not the bond company's problem.^[3] It does not guarantee that the movie will be good, or that it will sell. And it guarantees delivery of the picture as described in the agreements, not delivery of the picture the director dreamed about.

This is why delivery disputes matter so much. When a distributor rejects materials, or a financier argues the film delivered is not the film that was promised, the question of whether the guarantor's obligation has been met can end up in arbitration.^[3] A producer who has never read the delivery schedule is a producer who will meet the guarantor's lawyers at the worst possible moment.

The bond also sits inside a larger stack of contracts, each with its own triggers. I wrote about one of the most dangerous of those, the most favored nations clause, separately. A bond protects the lender if the movie is never finished. It does nothing about a capital stack that repapers itself after every closing.

In my experience, studios rarely bond their own pictures. When a studio finances a movie off its own balance sheet, it is effectively its own guarantor: it absorbs the overrun, fires the director, or writes the picture off, and no outside lender needs reassurance. The bond is an independent-film instrument because independent films are assembled from strangers.

A typical independent capital stack might include an equity investor, a bank lending against presales, a lender monetizing a state tax credit, and a gap lender covering the unsold territories. None of them knows the others well, and none of them will be on set. The guarantor is the one party whose job is to be there, which is why so many of the other agreements are drafted around the bond. Banks generally will not lend to an independent film without one.^[5] The bank's loan agreement assumes it. The tax credit lender's paperwork assumes it. Remove the bond and several of the other contracts stop making sense.

From the buying side, a bond also changes what a distributor is willing to commit to before a frame is shot. When I evaluated projects as an acquisitions executive, the presence of a recognized guarantor made a delivery date believable, and in a business where buyers prepay for movies that do not exist yet, that counts for a great deal.

For a family office or first-time financier, the completion bond is the document most worth reading slowly, because it defines what you are actually protected against. A few questions to put to the producer and their counsel:

1. Who is the guarantor, and who stands behind it financially if the claim is large?
2. What is the strike price, and which costs are excluded from it?
3. How large is the contingency, and what happens when it is half spent?
4. Are we named as a beneficiary, and in what order relative to the senior lender?
5. What exactly counts as delivery, and who decides if it has happened?
6. Has this producer, and this director, completed a bonded picture before?

The guarantor's willingness to bond a film is itself a piece of diligence. A specialist whose business is pricing the risk that a movie does not get finished has looked at this script, this budget and these people and said yes. It guarantees completion and nothing else. For an asset class built on optimism, a professional pessimist's signature is worth the fee.

If the project is coming to you out of another studio's development, read my piece on turnaround first. The bond guarantees the movie gets finished. It does not pay off the old studio's invoice.