Why producers form a special entity?

Many filmmakers have multiple libraries as part of their company asserts.  What happens when they get financing for a new project is that the entire assets of their company could be subject to creditors’ reach in the event of insolvency.  By forming a special purpose entity, many advantages are presented. For one thing, with only the recently acquired asset or assets on the special purpose entity’s balance sheet, lenders are more likely to provide financing at a favorable rate, especially because the entity appears to be carrying no additional debt. The larger company that created the special purpose vehicle is considered the parent company, and lenders are well aware that both balance sheets exist. As long as the loan is being made to the special purpose vehicle and not the larger entity, however, the parent company is not responsible for the deal and does not have to report the debt on its balance sheet.

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