Friday, August 05, 2016
More on the Arc Situation
The Globe and Mail has an article behind their paywall about the Thursday court proceedings relating to Arc. I can't quote from it extensively due to copyright, but I can summarize it.
While I was quick to say that without knowing specifics, it was not fair to blame Arc's management for the shutdown, it's now clear that the management was aware of the situation for at least five months and did not do enough, if anything, to fix it.
In December of last year, Arc made an agreement with Grosvenor Park Media Fund LP giving Arc access to up to $45.3 million. $17.5 million of that went to repay Callidus Capital Corp, a previous lender.
On Feb. 8, 2016, Arc defaulted on payments to Grosvenor. Grosvenor twice signed waiver agreements allowing Arc to pay later and extended another $4.6 million in credit. At this point, Arc convinced the producers of Blazing Samurai to make their $1.05 million payment due to Arc to Grosvenor instead.
Arc again defaulted on payments to Grosvenor in May and July. In the first six months of 2016, Arc ran a $9.2 million dollar loss. It was also behind $250,000 in rent, $2 million for office renovations and $1 million in payroll.
On July 26, Guy Collins of GFM Films, international rights holders to Blazing Samurai, sent an email to Grosvenor saying he was concerned that Arc had stopped production on the feature. Arc was trying to get an early payment for moneys due in August from GFM. GFM indicated that they would not be paying any more money. With no promise of revenue for Arc, Grosvenor called their loan and forced Arc into receivership.
This does not make Arc's management look good. Defaulting on loan payments while continuing to hire and increasing expenses is not the route to success. While I only know what was in the article, the logical thing to do would have been to cut expenses to the bone, eliminating anything not directly related to completing paying projects. Had they been seen to do that, Grosvenor might have been even more forgiving than they were. Arc's management had 5 months to fix things and didn't. What's worse, it doesn't appear that they tried all that hard.