Martin Bandier, chief executive of the music publisher Sony/ATV
Jackson Estate Steers to Next Challenge: Loan Refinancing
June 21, 2010 Wall Street Journal
by Ethan Smith
The estate has collected as much as $125 million in royalties
and advances from Sony Corp.'s Sony Music, which has sold
31.5 million Jackson albums since his death and plans to
distribute an album of previously unreleased music around
November. Corporate sibling Sony Pictures paid another $60
million for the rights to "This Is It," the documentary about
and advances from Sony Corp.'s Sony Music, which has sold
31.5 million Jackson albums since his death and plans to
distribute an album of previously unreleased music around
November. Corporate sibling Sony Pictures paid another $60
million for the rights to "This Is It," the documentary about
rehearsals for Mr. Jackson's planned comeback concert series.
Mijac, the publishing company that controls the copyrights
to songs written by Mr. Jackson, is on track to generate
$35 million in royalties. The estate is set to collect $11
million in dividends from Sony/ATV Music Publishing, the
joint venture with Sony Corp. that controls 251 songs by
the Beatles. Television and merchandise deals could generate
another $10 million, while deals to create a videogame and
two Cirque du Soleil shows based on Mr. Jackson's music
are set to provide additional revenue later this year.
The Sony Music deal guarantees Mr. Jackson's estate
significant additional cash advances in coming years, too.
However, Mr. Jackson's biggest financial obligation remains
unresolved. A $300 million loan from Barclays PLC, backed by
his 50% stake in SONY/ATV, matures at the end of the year.
To secure the loan in 2006, Mr. Jackson appealed for help
from Sony, which dispatched two executives to meet him
in Dubai and negotiate terms under which it would guarantee
the loan.
At the time, Mr. Jackson was in danger of defaulting on
a $270 million loan held by hedge fund Fortress Investment
Group LLC. As part of the agreement under which Barclays
ultimately refinanced that debt, Mr. Jackson granted Sony
an option to buy half of his stake in the company at any
time for a fixed price of $250 million. At the time that was
Mijac, the publishing company that controls the copyrights
to songs written by Mr. Jackson, is on track to generate
$35 million in royalties. The estate is set to collect $11
million in dividends from Sony/ATV Music Publishing, the
joint venture with Sony Corp. that controls 251 songs by
the Beatles. Television and merchandise deals could generate
another $10 million, while deals to create a videogame and
two Cirque du Soleil shows based on Mr. Jackson's music
are set to provide additional revenue later this year.
The Sony Music deal guarantees Mr. Jackson's estate
significant additional cash advances in coming years, too.
However, Mr. Jackson's biggest financial obligation remains
unresolved. A $300 million loan from Barclays PLC, backed by
his 50% stake in SONY/ATV, matures at the end of the year.
To secure the loan in 2006, Mr. Jackson appealed for help
from Sony, which dispatched two executives to meet him
in Dubai and negotiate terms under which it would guarantee
the loan.
At the time, Mr. Jackson was in danger of defaulting on
a $270 million loan held by hedge fund Fortress Investment
Group LLC. As part of the agreement under which Barclays
ultimately refinanced that debt, Mr. Jackson granted Sony
an option to buy half of his stake in the company at any
time for a fixed price of $250 million. At the time that was
a generous valuation, but Sony/ATV's value has since
soared to around $2 billion.
The Jackson estate and Sony have held talks about whether
the company will again guarantee a refinancing of the
debt backed by Mr. Jackson's Sony/ATV stake.
soared to around $2 billion.
The Jackson estate and Sony have held talks about whether
the company will again guarantee a refinancing of the
debt backed by Mr. Jackson's Sony/ATV stake.
If it won't, the estate could be forced to sell its stake in
Sony/ATV at a steep discount, though that would still generate
enough cash to wipe out the Barclays loan with hundreds of
enough cash to wipe out the Barclays loan with hundreds of
millions to spare. But Sony may have an incentive to reach
a deal on refinancing, because buying out Mr. Jackson's estate
would require it to pay hundreds of millions of dollars for an
asset it already effectively controls.
All of this stands in stark contrast to the state of
affairs when Mr. Jackson died. Despite being poised
for what was heralded as a major comeback concert series,
his finances were in shambles and he was unable to meet
some of his most basic financial obligations.
Among the unpaid bills at the time of his death,
Mr. Jackson had not paid $341,000 to Thomas Mesereau,
the lawyer who successfully defended him against
charges of child molestation in 2005. That bill and many
other creditors' claims, including invoices from several
other law firms, have now been paid.
The singer was also months behind on utility bills for
his longtime family home in Encino, Calif., where his
mother, Katherine, now lives with his three children,
along with the children of two of his brothers.
The Los Angeles Department of Water and Power,
owed nearly $9,000, was threatening to disconnect
service. AT&T Inc. was owed $1,300.
More troubling, Mr. Jackson had fallen behind on the
payments for a $5 million IndyMac loan secured by the
house. The property was scheduled to enter foreclosure
the day after Mr. Jackson died. A nearby condominium,
four months behind on loan payments and homeowners' dues,
was also threatened with foreclosure, according to people
familiar with the matter. Mr. Jackson's representatives
have now paid off those loans.
Mr. Jackson was living in a rented mansion in Holmby Hills,
a ritzy neighborhood near Bel Air, covering his sizable
personal overhead with a $35 million cash advance from
AEG Live, the concert promoter that was planning to stage
his London concerts. That loan, too, has been repaid.
Mr. Jackson's debts were spiraling out of control in other
ways, too. A loan backed by Mijac carried a crushing 16.5%
interest rate, to be paid out of royalties generated by the
company. When the royalty payments fell short of the towering
cost of servicing the debt, any unpaid interest was piled on
to the principal. As a result, by the time of his death,
the Mijac loan had reached $75 million, with $11 million due
in annual interest, which was several million dollars more
than the catalog was generating annually. The loan has now
been refinanced with an interest rate of less than 4%.
And thanks to increased album sales since Mr. Jackson's
death and a new deal for public-performance royalties,
the catalog is generating enough cash to pay off the
refinanced loan a little more than a year from now.
Looking to raise cash Mr. Jackson had planned,
then scrapped, an auction of most of his personal
effects from Neverland, his 2,600-acre ranch near
Santa Barbara. In 2008, after he had defaulted on
a $24.5 million loan backed by the ranch itself,
the property was spared from foreclosure when
Colony Capital LLC, a Los Angeles real-estate
investment firm, bought the note and put the property
into a joint venture with Mr. Jackson. That venture
is structured in such a way that Colony is responsible
for the ranch's overhead, maintenance and tax costs.
If the property is sold, Colony is entitled to recover
its costs, including the $24.5 million is paid to take
over the busted loan, with the majority of the additional
proceeds going to Mr. Jackson's estate. People with
knowledge of the situation say that because of logistical
All of this stands in stark contrast to the state of
affairs when Mr. Jackson died. Despite being poised
for what was heralded as a major comeback concert series,
his finances were in shambles and he was unable to meet
some of his most basic financial obligations.
Among the unpaid bills at the time of his death,
Mr. Jackson had not paid $341,000 to Thomas Mesereau,
the lawyer who successfully defended him against
charges of child molestation in 2005. That bill and many
other creditors' claims, including invoices from several
other law firms, have now been paid.
The singer was also months behind on utility bills for
his longtime family home in Encino, Calif., where his
mother, Katherine, now lives with his three children,
along with the children of two of his brothers.
The Los Angeles Department of Water and Power,
owed nearly $9,000, was threatening to disconnect
service. AT&T Inc. was owed $1,300.
More troubling, Mr. Jackson had fallen behind on the
payments for a $5 million IndyMac loan secured by the
house. The property was scheduled to enter foreclosure
the day after Mr. Jackson died. A nearby condominium,
four months behind on loan payments and homeowners' dues,
was also threatened with foreclosure, according to people
familiar with the matter. Mr. Jackson's representatives
have now paid off those loans.
Mr. Jackson was living in a rented mansion in Holmby Hills,
a ritzy neighborhood near Bel Air, covering his sizable
personal overhead with a $35 million cash advance from
AEG Live, the concert promoter that was planning to stage
his London concerts. That loan, too, has been repaid.
Mr. Jackson's debts were spiraling out of control in other
ways, too. A loan backed by Mijac carried a crushing 16.5%
interest rate, to be paid out of royalties generated by the
company. When the royalty payments fell short of the towering
cost of servicing the debt, any unpaid interest was piled on
to the principal. As a result, by the time of his death,
the Mijac loan had reached $75 million, with $11 million due
in annual interest, which was several million dollars more
than the catalog was generating annually. The loan has now
been refinanced with an interest rate of less than 4%.
And thanks to increased album sales since Mr. Jackson's
death and a new deal for public-performance royalties,
the catalog is generating enough cash to pay off the
refinanced loan a little more than a year from now.
Looking to raise cash Mr. Jackson had planned,
then scrapped, an auction of most of his personal
effects from Neverland, his 2,600-acre ranch near
Santa Barbara. In 2008, after he had defaulted on
a $24.5 million loan backed by the ranch itself,
the property was spared from foreclosure when
Colony Capital LLC, a Los Angeles real-estate
investment firm, bought the note and put the property
into a joint venture with Mr. Jackson. That venture
is structured in such a way that Colony is responsible
for the ranch's overhead, maintenance and tax costs.
If the property is sold, Colony is entitled to recover
its costs, including the $24.5 million is paid to take
over the busted loan, with the majority of the additional
proceeds going to Mr. Jackson's estate. People with
knowledge of the situation say that because of logistical
issues, Neverland is unlikely to be converted into a public
attraction like Elvis Presley's Graceland, making a
sale the most likely outcome, though it doesn't appear
attraction like Elvis Presley's Graceland, making a
sale the most likely outcome, though it doesn't appear
imminent.
"The fourth quarter will belong to the Beatles,” Mr. Bandier predicts.
Less clear, however, is what will happen to the Sony/ATV venture
itself. While Sony executives and lawyers for Mr. Jackson’s estate
say they see no changes afoot, the structure of the partnership
would be altered if the estate put its stake on the block.
Sony would have first-refusal rights if that happens, and
Sony would have first-refusal rights if that happens, and
company executives say they would be interested in
increasing their holdings. In the interim, the playing field
is still Mr. Bandier’s, which his supporters say they find
comforting.
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