Michael Jackson into the New Millenium: Sony/ATV Ten Years Loan
The Michael Jackson projected into the New Millennium was no longer the man who shared the podium with the then President of the United States, Ronald Reagan; aside the new artistic maturity and quality of contents production, ten years later, he was “poorer”. (“poor” in the broad sense, considering his privileged status).
The New Economy of Internet, the dot.com, the iPod, the cell phones and the Palm Pilot was the 1990s American illusion led by private-sector spending and private-sector employment. In the attempt to exploit the services arising from investment and speculation, Michael Jackson’s revenue streams became financialized from 1995 onwards. It was a fashionable exercise for many others wealthy Americans. It was a way to stay relevant through the transition of the American Economy from Industrial Capitalism to the financialized Bubble Economy that around 2000 lead the world into what the “Great Recession”.
Finance is a discipline often confused with accounting but contrary to the boring accounting entries, study the processes of monetary flows can be pretty creative. And in mid ’90 “finance” got creative.
Maybe too much… In the wake of the New Economy financial institutions began marketing mortgages-backed securities and sophisticated derivative products at unprecedented levels.
In just a few years, they doubled the amount of money and debt in the economy. Lending large sums of money, especially into the property market, pushed up the price of houses along with the level of personal debt.
One form of financial creativity apparently suitable to Michael Jackson came straight from Wall Street: the David Bowie bonds is the best example of securitization of intellectual property of that time. Michael Jackson didn’t have the opportunity to jump on that wagon even if it was reported he had thought about many times. Unfortunately, he was already entangled in something more conservative and maybe not planned at best for his personal and corporate need.
How it all began:
In November 1995, after the merger of ATV catalogs with Sony Publishing catalogs, Sony Venture Capital Corporation – an investment arm of Sony Corporation – issued to Bank of America a bank guarantee in favor of Michael Jackson to facilitate corporate loans and serve fresh working capital.
The guarantee amount was of abt 148 million of dollars. Media reported that Michael Jackson had received about 90 million from the transaction reached with Sony and its affiliated. To reach 50% membership in the newborn Sony/ATV, Sony had to put on table 115 million. That shows how valuable the about Michael Jackson’s 4000 songs was, compared to Sony Publishing. Mr. Branca confirmed.
In a deposition of February 2017 during the trial with IRS, Mr. Branca summed up Sony/ATV rules and provisions, if it wasn’t for some crucial omissions, due to his “labile memory”.
- Exhibit B of Sony/ATV Operating agreement describes the ownership percentage by catalog and country, no amount mentioned. (equalizing partnership).
- Six and a half million annual payment guaranteed to MJ, providing all other company expenses paid.
- Sony Music Entertainment operated the company at a cost of 10% higher than any other publishing company and 50% of these hefty expenses was for Michael Jackson account.
- The shareholders could not buy each other… for 10 years which lapsed in December 2005.
As already described in other blogs Sony made substantial cash injections but inside the company (Sony/ATV) not to Michael Jackson. And by the minute the company became operative, Sony Music Entertainment (SME) started charging the company (Sony ATV) with administrative expenses and other extraordinary cotillons.
It should also be clarified that Sony itself did not collect money under the petals of Kyoto trees but they were borrowing from banks, like Michael Jackson. Make this kind of exercise – purchase new catalogs for company project expansion and the heavy operating costs of the company, generated huge company liabilities, resulting in a lower market value of the whole catalog and good tax benefits. And Michael Jackson handled half of all of it. The term “merge” means to combine or join together, and that’s what happened between ATV catalogs & Sony publishing.
There were rumors that later in 1997 MJ yielded another 2% of his foreign catalogs to Sony and therefore the Joint-Venture situation would be reversed. There are NO documents either amendments in the “operating agreement” that confirm the transaction. All the loans describe a 50% membership by both parties.
On this other hands, it should be clear by now that when search informations on Michael Jackson, we mostly find hacked and manipulated news. In synthesis bull shits spread around by whom had interested to put down MJ reputation. An evil quirk that Sony must’ve developed within the company’s compliances.
Michael Jackson financial “pressure” as Mr. Branca called it, was lawsuits against him piled up in between ’92 and ’94.
L.A. Gear filed a $10 million suit against Michael Jackson and his companies, accusing him of fraud and breach of contract in a deal for a failed line of sneakers. Promoter Marcel Avram sued for $20 million for cancelling his “Dangerous” world tour. A Chilean promotions company sued for $5 million for cancelling two concerts of the Dangerous Tour, one in Chile and another in Peru. Smith-Hemion Productions sued the Jackson family for the musical benefit show “Jackson Family Honors”. All lawsuits settled around 1994.
Most of the issues came from Evan Chandler blackmail and extortion. MJ had to pay a reported estimate amount of circa 20 million of dollars, not to mention the huge amounts disbursed to lawyers and investigators. It was enough to burn almost his entire business and career and the weight of the whole period crashed his soul and his confidence.
The (Never Neverland) 115 million
Unlike talent or genius, stupidity cannot be hidden and the urgency of manifestation belongs to its nature: Zia Modabber, an attorney that despite being fired by Michael Jackson for negligence due to the incompetent preparation about the Avram lawsuit appeal in 2002, still works for MJ Estate, involuntarily confirms that between 1995 and 1998 not even a shadow of this 115 cash got into Michael Jackson coffers, apart from the incomes of the History Tour and the related album.
If he had received 115 million on his bank accounts, what was the reason to borrow almost immediately the first 90 million? He would not have such a “burn rate” issue. He would have cleared out the old and the pending matters and started off with a clean slate. Instead, as I can see from documents and testimonies, he merged his ATV shares against a guaranteed loan. In The Operating Agreement NO trace of CASH if not for 13 million representing 2 years of guaranteed advance and few others amounts not related to the Joint & Venture.
Although Sony intentions and plans are clear, I don’t know what Mr. Branca had in mind suggesting him not to sell. True is that the value of Sony ATV raised up sharply in the next few years – as well the corporate company debts – but sometimes – having seen how things developed between Sony & MJ – “a small amount of cash on the nail rather than a large amount sometime in the never-never future” is the best choice.
It looks as Michael Jackson entourage didn’t plan based on his corporate need and standard of life or worst they planned on volatile instruments or other deals fallen through. However, looking back to the amounts and dates of Bank of America loans, correspond likely to a financial project built around a table, with all the participants interested to exploit the publishing catalogs the same fashion of commodities and derivates. (Sony included).
Alternatively, it was a long range of “operations” finalized to corner him and to strip away his assets. Or something in the middle – sometimes it start with the best intentions and then the targets change course – However, these loans were not opened to cover the holes of a pathological big spender as media, books, biographers keep claiming.
The Loan Guaranteed BY 50% of Sony/ATV
Between 1995 and 1998 there were four restated and consolidated loan amendments due to amount increase and documents revision. The structure of Michael Jackson business undergone to various modifications and some new trusts were created. The loan of 140 million consolidated in 1998 bore a Prime Rate of interest at 6.16% per annum. The loan term had a due date December 2005.
Note: a long-term loan provides working capital to a business it can use to purchase assets, which can then create additional income for the business. A company takes on long-term debt to obtain immediate capital. A long-term loan provides higher loan amounts, a lower interest rate, involve collateral submission, repayment in installments and tax benefits.
Before you think Michael Jackson touched the entire amount, a bitter interlude needs to be open which is not the bank interest rate but the commissions Michael Jackson “vultures” team used to take. In this period, “the chosen ones” able to grab “candies” happened to be Mr. Lee & Mr. Branca, at least.
The documents tell that Mr. Branca, as per agency agreement with Michael Jackson, among other things, used to pocket 5% of the principal amount of the loan. Besides it, he was entitled to take directly from Sony/ATV as follows:
- 5% of all MJ “guaranteed advance”
- 5% of all MJ “excess of cash flow”
- 5% of the “Put Price” amount, if the clause would ever exercised.
To facilitate the 1998 loan documentation, he “generously” waived the direct payments from Sony until September 2005, to reclaim the whole “package” – principal capital and accrued interests – at expiring date by issuing a UCC lien for 50 million of dollars over all Michael Jackson publishing assets.
Business is business: especially in the United States and Michael Jackson was a smart businessman, no doubt on this; but here there is a deep consideration to make: these two were friends once.
Why Mr. Branca needed to reiterate his very existence in Michael Jackson life in that way and at the very time when MJ was already up to his neck in it? It was not about the money. It would make little sense. Mr. Branca got away with 13.5 million – not with the original amount requested – and without making additional troubles.
So what it was: revenge? Power affirmation? (you fired me but I exist). Or he was part of the already in motion mechanism to open the bankruptcy procedure and compel MJ to sell off all to Sony? The contract enforcement was a means, the motivations might be others. Who thinks Mr. Branca made this action for greed is a naïve, narrow mind. These people do not need money and do not sue for money. Power, revenge and favoritisms are much more likely.
In February 1999 there was another change in the Michael Jackson Trust structures. The company MJ LLC merged into the newly constituted MJ-ATV Publishing Trust.
On December 2000, there was an additional amount added to this loan in the principal amount of 45 million. The loan bore Prime Rate of interest at 7.14% per annum.
On September 30, 2002, a third loan of principal amount of 11’650 million. The loan bore prime rate of interest at 1 month LIBOR + 2.00% per annum. With it, there was the second amendment reinstated and consolidate loan and agreement for a whole 200 million. A fourth loan by September 2005 was already planned in the loan agreement.
Why going from a fixed rate on a fluctuating one? Because in 2002 the LIBOR rate was lower than the US prime rate and although floating there was good chances of speculation.
With a hedging contract, the risks of an increase in rates should limit the damage.
These two videos are a general introduction suiting who’s not involved in such activities but wish to have a rough understanding. In short: Libor + spread rate, the hedge contract costs, the amendments cost and banks services: everything for MJ accounts. Absolutely normal, just financial practices. Banks always covers themselves. However, Michael Jackson’s Bank of America loan was really overcollateralized. Here the details:
- MJ-ATV Trust pledged to Bank Of America all MJ ATV’s rights, titles, and interest in Sony/ATV. That meant all the economic interest in Sony/ATV, all distributions, all deposit accounts, including the interest-bearing the cash collateral account. All security accounts and investment accounts, all notes, certificates of deposit, deposits, accounts, checks.
- Account Collateral: all interests, dividends, cash, instruments and other property from time to time received and receivable.
- All the rights to the Hedge Contract Agreement.
- The right to exercise the “put option” set forth in Section 7. 9 of the Operating Agreement of Sony/ATV
- Until full payment of all obligations under the loan, MJ-ATV Trust could not, without the prior written consent of Bank Of America sell, lease, assign, trade, dispose or transfer any portion of its assets.
- MJ/ATV Trust had to agree, that payments of Sony ATV Operating were transferred directly to the Cash Collateral Account. All revenues received by the MJ ATV in connection with the Operating Agreement had to be received in trustier the benefit of the Bank, be segregated from other funds and be forthwith paid over to the Bank in the same loan as received.
- MJ ATV had obligations to maintaining the cash collateral and investment accounts. Had to perform and observe any term provision of Sony ATV Operating Agreement to be performed relating to the collateral company. Had to deliver to the bank all the financial statements relating Sony ATV, inform if he received any “guaranteed advance” or “Excess guaranteed advances” specifying the amount.
- If an event of default occurred where MJ-ATV failed to pay in full when due principal or interest due, Bank Of America had the right to resort to any or all of the Collateral and to exercise any the rights of the secured party. At its discretion, the bank could sell MJ/ATV’s interest in Sony/ATV within commercially reasonable terms .
- If the MJ ATV would have failed to pay the outstanding principal amount and the interests of the Loan at maturity date, the Bank had the right, at anytime from and after December 21, 2005, and within to February 21, 2006 (the “exercise Period’), to exercise the Put Option under Section 7.9 of the Sony ATV Operating Agreement,
causing MJ ATV to sell to the Sony Music Publishing his Membership Interest .The Bank would have received the entire Put Price.
Apart from the old infos I read in countless of “investigations”, articles and books trying to give reasons to it – not knowing about some crucial contracts clauses – in real, Sony played long with MJ.
The bank had Sony involved to pay the principal loan amount, only in case MJ would have defaulted. But it is crystal clear that the whole loan focused on the expansion project and the grown on value of Sony/ATV which is a classic financial speculation.
The documents tell that MJ never touched the “guaranteed distributions” in 10 years due to the bank agreement. That’s why Mr. Branca talks about “a forced saving“.
However “someone” touched those moneys, or did not transfer sufficient amounts, since too often there was never enough to cover the interests. And this is not an opinion. There are at least four key testimonies, one of the MAN himself, who testified that money was missing.
The profits of the exploitation of Sony/ATV would have been a successful outcome for Michael Jackson only if the distributions would have been equally allocated among the shareholders. It wasn’t like that at all.
“Just as taking out a new loan creates money, the repayment of bank loans destroys money… Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.” (Money Creation in the Modern Economy, Bank of England p3-4)
Transcript MJ Estate v/s IRS John Branca – Zia Modabber – teammichaeljackson.com
Unfinished Business – Judith Hamera
Sony/ATV Operating Agreement – BOA Security Agreement 98/2002
The Road to America’s Economic Meltdown – Raymond Beresford Hamilton