Michael Jackson’s “Financial Problems”: Somebody Was Really Out To Finish Him
A brief timeline of the dirty corporations’ games toward the already problematic financial situation of Michael Jackson immediately after his acquittal from the 2005 criminal charges. Media trumpeting half-truth through the usual “anonymous sources” and spreading around the general public and financial institutions a distorted perception of him.
While media kept on to describe Michael Jackson run away from the US as a period of peace and relaxation, actually was the contrary. At the time MJ arrived in Bahrain his financial situation had deteriorated dramatically due to a series of events.
Not to forget the dirty games corporations did to him while trumpeting through the usual “anonymous sources” half-truth news that the complacent press would have immediately translated into impressive headlines like these
and give to the general public and financial institutions a distorted perception of him, I make a brief timeline of his already difficult life and assets.
Following his acquittal on criminal child molestation charges in California, Michael Jackson relocated off to Bahrain which then became his primary residence by the fall of 2005.
The most pressing financial issue was the need to refinance a debt of approximately three hundred million dollars ($300,000,000 00) owed by MJ-ATV Publishing Trust and MIJAC Music Publishing to Fortress Investment Group LLC, a New York-based private equity firm specializing in buyout, recapitalization and turnaround situations such distressed debts.
MJ-ATV and MIJAC were trusts formed by Michael Jackson for the purpose of holding title to a certain intellectual property, including the libraries of his songs, the Beatles, and other artists catalogs. MJ-ATV jointly owned with Sony Corporation, Sony-ATV Publishing Trust, LLC. Fortress had originally been acquired these investments from Bank of America and was due for repayment in December 2005.
I would like to put a particular emphasis about the events that have developed before and after the final refinancing because from now through next year I’m going to face an embarrassing and shameful issue regarding the whole set of MJ managers and lawyers, without exceptions.
The reason is that more I get into the issues of these loan/investments more I understand that this is a case of what in finance is called by definition, PREDATORY LENDING. Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions. If it not clear enough I’ll give you an example: predatory lending practices triggered the subprime lending crisis in the United States and global recession. If someone of your friend lost his house after 2006, you have to thank these kinds of financial companies.
These events happened in chains and always whenever there were positive signs of institutions interested in taking over the debt and willing to get into business with MJ. I will go into details step by step for a better understanding. The margin of the called “casualty” is more than suspicious.
MJ had been looking with large advance – since in 2003 – the refinancing with Bank of America. Fortress came into play through one of his affiliated called Transitional Investor LCC, which was contacted by a sort of broker named Prescient Acquisition, of Hackensack, NY. The main problems of MJ in 2005 was a liquidity trapped situation due to Sony/ATV Structure as follows:
- Heavy Operating Expenses invoiced by Sony
- Sony request from $3MM to $9 MM per annum for “Guarantee” the capital of his investment.
- The indebtedness of $272,500,000 was subject by Bank of America to restrictive loan covenants and restrictive collateral and pledge requirements which would cause further constraining liquidity support requirements.
- MJ Publishing Assets suffered of a limited value due to these restrictive covenant default conditions imposed on his credit line of $72,500,000 with the bank of America.
- MJ had over $6,000,000 of Vendor Debt, various legal action from creditors.
For the above reasons, MJ was in urgent need to refinance the existing debt, solve the liquidity concerns, prevent “fire sales” of the library assets, preserve the ownership of the libraries, remove the liens from MIJAC and Neverland (actually the loans were extremely overcollateralized) and finally regain his financial freedom.
Transitional/Fortress provided already in December 2004 a letter of intent for a first bridge loan to be used to close the relationship with Bank of America, and a project fitting Michael Jackson desire to exercise the buyout option and purchase the 50% of Sony/ATV owned by Sony Music.
On February 1st, 2005 they offered a signed letter of bridge loan agreement and was not just to pay off Bank of America loans but to also buy the other half of the library that Sony owned. The gross amount was in excess of 537.5 million of dollars. (Full document can be read here) EX12 transitional proposal signed by MJ
However, the most urgent problem to be solved was the credit line on 72 million with Bank of America that was guaranteed by his personal catalog MIJAC, his house Neverland and a personal guarantee and with the restrictions and the covenants composed always risking to provocate loan default.
THE COMMITMENT LETTER ON THE SMALLER FACILITY – MJ CREDIT LINE OF 72 MILLION OF DOLLAR WITH BANK OF AMERICA
Negotiations and exchange of documents went back and forth for 3 months and the transaction comprehended fees for Transitional, Fortress bank and Prescient.
In particular, there was a 7% break up fee to be paid to Prescient and a 1.5% to Fortress upon the execution of the commitment letter.
This means that if the commitment letter would have been executed, agreed and signed by MJ and for some reasons, the deal could not be closed, Fortress and Prescient would have been entitled to get the above fees from Michael Jackson anyway.
In addition to the above Prescient would have taken 1.5% of commitment/originate fee upon the amount would have been funded to the borrower (the MJ Entities).
Note: here the compensation formula developed by Lehman Brothers for investment banking services related the finder fee.
-5% of the first million dollars involved in the transaction
-4% of the second million
-3% of the third million
-2% of the fourth million
-1% of everything thereafter (above $4 million)
Despite Lehman being the most common form in use, this does not mean that rates are not still negotiated on a case by case particularly for $100 million and higher transactions. Serious brokers take 0.25% of the whole loan. Apart from a bad personal credit score, the motivation of the costly treatment that MJ suffered is unknown – but seeing these numbers – it sound he was in the hands of sharks who didn’t care about his interests.
These requests were amended/corrected few times between February and mid-April 2005 when the compensation issue appears to be that Fortress commitment fee and Prescient originate fee would have been payable at the first date on which the facility was drawn, which mean upon the actual funding of the loan.
But there was still 1 million breakup fee payable to Fortress in the event that some alternative financing was completed within a certain period of time after the agreement had been signed.
In short, if Michael Jackson would have signed this letter of commitment with Fortress and not get into financing with them, he would have to still pay 1 million to compensate the financial institution for the use of their stationary!!!??
The document was prepared with a separate block requesting Michael Jackson to sign it individually and as the beneficiary of MJ Trust and witnessed by Mr. Sydow (Prescient) and Mr. Stabler. Which is something very strange and it’s not a normal practice for a commitment letter.
Something smelled fishy and Michael Jackson did not sign this commitment letter. All the conversations on the commitment ceased at the same time that Yucaipa had gotten involved with Michael Jackson as one of his advisors. Yucaipa was controlled by Mr. Ron Burkle. Fortress conversations with them began after the purchase the loan from BOA.
Fortress intentionally withheld from Mr. Jackson any written agreement between any Fortress entities and Jackson’s entities and did not tell to Michael Jackson or anyone on his behalf that it was negotiating with Bank of America to purchase the Bank of America loans.
What I am trying to explain is that Fortress was still in active negotiations with Michael Jackson and his people with respect to the $92 million loan facility on April 17th and 18th, but by May 3rd they executed assignment and assumption agreements, a done deal, with Bank of America.
- What was going on during those two weeks between April 18th and May 3rd?
- What was the period of time that they were no longer hearing from Mr. Jackson?
Roughly a week and it’s sound impossible to settle a mountain of documents in such very tight time frame. But let’s believe it had might be possible… so, there is a silence for a week and Fortress said, “Well, if we hear from Bank of America, maybe we will just buy this loan directly”?
- What were all of the reasons why Fortress didn’t tell to MJ that it was in discussions with Bank of America to take an assignment and assumption of his loans?
Fortress defended the subject by saying they signed a confidentiality agreement with Bank of America. But they also had entered into a confidentiality agreement with Michael Jackson. So it was just inappropriate not to tell him that they were trying to buy his loans.
But there were some factors that motivated Fortress business decision to pursue the purchase of the BOA loans directly from BOA. In fact, in April 2005 Mj need to cap off a relatively small interest payment (abt 600’000 USD) that was due on the credit line with Bank of America and fund were not available to cover it. As a result that Bank of America called the note and they had in actuality by then accelerate the default. At that point, MJ was “technically” in default with the bank.
Keep in mind that MJ was under criminal trial and all his cash when available served to pay defense experts, apartments of the lawyers and the employees that had to live in the area at the time.
The “technical default” of the credit lines triggered a mechanism behind the doors. In fact, there were others competitors around that time, like Goldman Sachs with a revised offer, Mr. Branca with 2 different offers, and Sony hoping the opening of steps that at the end would bring a bankruptcy procedure.
For Fortress, it was handy to simply purchase the loan directly rather than bid against anybody else or continue to negotiate something pursuant to the commitment letter that was existent and issued by them with MJ while entered into the confidentiality agreement. Mr. Burkle suggested that this was what happened. Whether that’s plausible or not, the reader can decide it.
At the end of all the above maneuvers Michael Jackson received out of the blue a “hello” letter that basically says:
“Hello, Mr. Jackson. You owe us something million dollars. You don’t owe the Bank of America anymore. We have purchased the debt and here is some information with respect to the current status and some further pieces of information that we require from you”.
THE EARLY ADVANCE AGREEMENTS OF MAY 25, 2005, THE BANK OF AMERICA FOURTH LOAN DATED 2002 THAT WAS NEVER FUNDED
In the execution copies of assignment and assumption agreements, dated May 3, 2005, between Bank of America, and Fortress Music Trust II( an entities created by Fortress solely for this specific acquisition) there is an assignment and assumption agreement related to a fourth loan agreement with MJ-ATV, which appears to have no balance. Actually existed certain unfunded commitments within the MJ-ATV loan. There were funding obligations of about 3.5 million for Bank Of America to fund additional dollars at some point in time and also was contemplated in the Bank Of America documents an undertaking to look at a $25 million further advance based upon due diligence and an analysis of the underlying assets. Fortress Music Trust II held this money and both amounts were instructed by Yucaipa (Mr. Burkle organization) to be credited to MJ account. Fortress complied.
What a strange way to swap a debt 7 months before the expiring date and with about 30’000 more million to be fund…eh…
At this point, Michael took back his passport and leave the USA for Bahrain. And even there, it wasn’t a walk in the park.
In fact, in July 2005 Prescient sued him for $48 million, in relation to the smart “swap” done by Fortress directly with BOA.
And in New Orleans, there was a court proceeding in the Joseph Bartucci case. https://www.gpo.gov/fdsys/pkg/USCOURTS-laed-2_04-cv-02977/pdf/USCOURTS-laed-2_04-cv-02977-1.pdf resulting in a fine of $ 10 000 for failing to appear at the hearing. The case was denied: it was another case of someone trying to extort money to MJ.
But while MJ was around the Middle East with a Bahraini delegation to discuss and looking for fresh alternative refinancing, tabloids pictured him as trying to spend further money on useless amenities and in parties.
In Bahrain, there had been posters advertising 2 Seas Records (Sheik Abdullah’s record label where rumors said MJ probably released his “single” as “Music to Heal the Pain” using images of the Katrina disaster and conveniently leaving out any mention of MJ).
In September Michael was at the Dorchester Hotel in London to give a deposition for Marc Schaffel’s suit
by the end of the same month, Mr. Branca allocated a UCC over his assets (MJPT – MJ/ATV) which definitely blocked and created further problems the refinancing discussions, being a new lien in between MJ assets and the financial institution.
In October Michael’s countersuit against Marc Schaffel, accusing him of concealing and misappropriating funds and settled a lawsuit filed by an antique dealer who alleged he had not fully paid for $380,000 worth of goods.
November was the month of media reporting a lot of fun and leisure for MJ:
Michael & the kids are back in Dubai where they stay at the One and Only Royal Mirage.
Michael visits a development model at Nakheel company
Michael at the Dubai Desert Rally racing tournament at Le Meridien Mina Seyahi hotel in Dubai with renowned Bin Sulayem, UAE rally champion in Dubai, United Arab Emirates.
Michael & the kids in Muscat (Oman) having fun
All of the above activities were not holidays but deep explorations of possible business and joint venture with middle eastern local entrepreneurs. In Oman, he went to explore a project called “Blue City” and news told he was extremely charmed by that beautiful country.
Meanwhile former business partner & adviser Dieter Wiesner filed a civil complaint against Michael & his society Triumph in Los Angeles demanding $64 million for fraud & breach of contract of MJ Net Entertainment and Marc Shaffel gave to a US TV, the show Good Morning America excerpts from a phone recorded message left by Michael to him in 2003 which contain anti-Semitic words…
Shaffel was involved in“What more can I give”, a song which was supposed to raise 50 million of dollars for victims and families of the September 11 terroristic attack. Shaffel was a well-known sex industry scumbag and when MJ discovered his background, immediately ended the association with him. Actually, Shaffel was booted off of the recording project because of his lack of musical expertise and the rights to the song, were of Michael Jackson.
He was desperate to get the release of the single and was around the press claiming he owned the song, even if he had no rights to exploit, distribute or in any way interest in the master recording of ‘What More Can I Give.'” He falsified books and records to try to get as much money as possible from Michael Jackson before the termination of his collaboration and after being fired he postdated $784,000 in checks he wrote on behalf of the company Neverland Entertainment. When asked by an attorney to explain his fraudulent actions he answered: “I just didn’t want to get caught holding the bag for expenses Mr. Jackson had agreed to,” adding that MJ had agreed to keep paying his expenses (including basics like rent and utilities) for another six months after letting him go. Am I that bad to think that he was trying to put MJ down to extort him more money?
MJ’s “Christmas gift”, that year, was a Court hearing in the Debbie Rowe‘ s children visitation rights case in Los Angeles.
As part of his efforts to look for refinance his debts and liabilities, including the Fortress loans, on November 26, 2005, MJ formalized an arrangement with AQ Business Consultants to assist him in obtaining new financing. AQ Business Consultants, a company organized under the laws of the Kingdom of Bahrain, and assisted MJ to negotiate an agreement under which Fortress agreed to forbearance from any enforcement action based upon existing loan defaults due on December 2005. Accordingly,
This agreement allowed MJ a forbearance period of 30 days and cost him a break-up fee of 2 million of dollars plus 1% of the total due amount to be payable to Fortress. The new date to repay the Bank of America Loans was set as pe January 19, 2006.
Such small period of time: too short and too expensive…(You can read the documents here AY – Exhibit 25 forbearance dec 2005)
AQ Business Consultants tried to obtain the necessary financing prior to the date for repayment of the Fortress Loans but failed due to an inability to satisfy the Sony condition. However, he soon realized that two main obstacles prevented them from quickly securing new financing.
- Sony consent to Michael Jackson’s use of his interest in the Sony/ATV catalog as security for any new loan. (which is a normal practice in case of J&V)
- Fortress right of “last offer” to provide financing. (a clause the included within the first forbearance conditions).
The year closes at sea and the new one had already the premises of many obstacles to be resolved.
Meanwhile, the tabloids went crazy with the above pictures.
Stay with me…
Various exhibits and testimonies of the Prescient lawsuit 2005/2007 pacermonitor.com/case/16787632/Prescient_Acquisition__Group,_Inc_v_MJ_Publsihing_Trust_et_al
- Anyone interested in reading the depositions can send me an email
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