Friday, February 23, 2007

The King Of Pop, Michael Jackson, Soon to Meet Hard Core Debt Collectors: BofA Sells Paper: Posted By Robert Paisola

Bank of America, which holds a $270-million note from Michael Jackson
secured by his 50% interest in Sony/ATV Songs, has sold the debt to a New
York private equity fund. Sony/ATV, of course, is the owner of lots of
valuable music, including The Beatles' catalogue. It's Jackson's biggest

B of A has decided to cut and run, turning Jackson's account over to the
high-finance equivalent of a collection agency. The obvious conclusion is
that, in B of A's opinion, the risk profile of Jackson's IOU has changed
sufficiently that it's best to take the loss and be done with the whole
regretable episode.

Jackson's loan is now owned by the Fortress Investment Group, which
probably doesn't give a damn about Jackson's fame and is looking at the
loan as a means to an end, the end being significant short-term profits.
Jackson's finances are now out of the hands of relatively friendly
Hollywood bankers and in the hands of a hard-nosed New York workout firm.
This from Fortress' website, describing the company's Special Situations
fund and it's mission:

Its investment objective is to generate superior risk-adjusted returns by
opportunistically acquiring and originating a diversified portfolio of
undervalued, orphaned and distressed investments throughout the United
States, Western Europe and Japan.

Note the word "opportunistic." Nothing in that description -- or anything
else on Fortress' website -- indicates that the firm is star-struck and
willing to let the King of Pop ride in exchange for some autographed
pictures and a company picnic at Neverland. Instead, Fortress no doubt
sees the Jackson notes as a sound investment with enormous upside.
According to this report:

With this sale, Fortress now stands to become a 50 percent owner in
Sony/ATV Music Publishing if Jackson should default on the loan.
Technically, he is currently in default. Further, Jackson's deal with Sony
comes to an end this December, at which time the company can buy him out
for $200 million if he can't come up with a new buyer or enough money to
pay back the loan. The Fortress deal is also rumored to include a $70
million loan Jackson has on his own publishing catalog, called MiJac.

Here's one scenario: Fortress calls the note -- remember, it's currently
in default -- and Jackson can't come up with the cash. Jackson loses not
just The Beatles' catalogue, but his own. His income, currently depressed
owing to Jackson's weirdness and his inability to put out a decent CD,
drops even further. Jackson is forced to radically curtail his spending
and liquidate other assets to stay afloat. He lays off his entourage --
members of which immediately divulge Jackson secrets to the tabloid media
-- and puts Neverland on the market. He starts showing up at mall

Fortress, on the other hand, is suddenly a major player in the music
business, with lots of great meetings to attend. It can either bank the
annuity income the songs provide or, more likely, cut a deal with Sony or
some other buyer and pocket a ridiculous amount of cash.

Either way, Jackson is what lawyers like to call "screwed." (Well, the
lawyers I know, anyway.) There is no longer anyone in his financial life
who cares at all about getting to rub elbows with a superstar. From here
on out, it's lawyers working on behalf of investors expecting a 30% annual
ROI and smug, slightly sadistic analysts looking at hard, hard numbers.
When you're as deep in the hole as Jackson, there's nothing harder than
hard numbers.

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