MICHAEL JACKSON’S 2006 REFINANCING ASSETS: THE SONY/FORTRESS OBSTACLES

At the beginning of January 2006, while media carried on to portray Michael Jackson’s apparent fluffy life, splinted between marriage invitations and shopping binge, his middle eastern advisors were actively looking for solutions to close the loop around useless meetings and related postponements that seemed very much an excuse to drive MJ to the point of no return: bankruptcy.
Bahrain-based financial adviser Ahmed Al Khan and Omni representatives were principally responsible for the restructuring of financial aspects on behalf of the various Jackson entities involved in the transaction. Five groups expressed interest in getting into business with Michael Jackson: Cerberus, Cheyne Capital, Citigroup Global Markets, Goldman Sachs, and Fortress.
Until that time, except for the documentation assignments with Bank Of America loans and the short-term forbearance papers, Fortress made no effort to present a concrete refinancing plane to Michael Jackson.

After the previous tentative of refinancing and sale collapsed with Dubai’s own government company Istithmar, due to Sony’s objections, Fortress, with the right of last offer condition, blocked a proposed deal with UK-based Cheyne Capital in early January 2006.

Mr. Zu’bi, with two other MJ’s financial representatives, Gaynell Lenoir and Frank Correa of Omni, met with Fortress and Sony at Sony headquarter in New York.  On that occasion, they concluded that there was a need for New York counsel to be brought in on the borrower side. There when White & Case, came in.

Villiers Terblanche, of White & Case LPP, described during a deposition of Sony people inappropriate behavior that was still around while he got his initial debriefing of the transaction. Sony people at different points, came in to pick up their bags and their documents, so they had to stop the meeting. During the deposition, Attorney Terblanche felt to point out this: “Can I just point out, I don’t think, I may be wrong about this, but I don’t think the original financing, meaning the old Bank of America financing, was with Mr. Jackson himself. He was ultimately added as a guarantor, correct to point out; I think that he was–He may not have been a borrower, to begin with”, which confirms that the initial project of an investment loan to support Sony/ATV expansion. 

 AQ was able to obtain Citigroup’s interest through a commitment letter and term sheet Citigroup’s stake. And among the other offers, it was the best. When Fortress was asked to put forth a financing proposal, most of the guidance line of terms came from Sony exec Rob Wiesenthal, who insisted on keeping the collateral assets pledged as per the Bank Of America loans (50% of Sony/ATV interest, Mijac catalog, Neverland & MJ personal guarantee). The value of Jackson’s collaterals was the ballpark of the total refinancing loan, and Fortress was not competent in the field. I ‘m going to summarize part of the testimony of Daniel Groppel, who was the managing director of Fortress at that time and supervised all the transactions.

There was no specific value in the catalog, other than saying that Mr. Jackson’s interest in Sony ATV exceeded the value of both loan facilities. The catalog is an income stream, and royalties are collectible for what is in the catalog. Music royalties have been bundled together and valued in the past, but different types of catalogs trade at very different types of valuations.  It was challenging to put a value on the Sony/ATV catalog because there had not been a music catalog like Sony/ATV, so it would be difficult to say with any level of precision that the catalog is worth X or 1.5 X because it was such a valuable asset that someone would have paid a premium for it.

And the full potential exploitation of MJ asset was the central point for Fortress connected with this financing. They knew that there was a way to value and even sell that music royalty stream; they knew that bonds tied to music royalties were valued and sold as futures. It had been done in the Bowie context and other artists. But they could not focus on valuing this collateral with the securitization that had occurred previously concerning music royalties, which was among other things, a work done by  Mr. Koppelman for various artists but not for Jackson, who had paid him 1 million per year for two years to have “the nothing” but an offer that did not suit his requirements. 

Mr. Joe Lee of Fortress, who had some knowledge in the field of music catalogs securitization, confirmed that it would be complicated to put a value on this catalog. Traditionally music catalogs trade in a range of 10 to 15 times NPS, which it’s some kind of income stream coming off of a music catalog, but Sony/ATV catalog might have been inside or outside that range because of Sony’s control due to the agreement with which Sony operated the catalog and the fees that get laden onto the asset.

Fortress made the decision, based on a range often to times NPS, adjusted for those factors, that the loan would be comfortably covered. setsTen to 15 times NPS in this context, gave the gross number NPS $115 million, which would have been a billion to a billion six hundred-ish.

Fortress valued at the minimum of a billion gross value for 100 percent of the Sony ATV catalog for the very significant difference of this catalog between NPS and cash flow because Sony charged the ATV entity much money to manage. Sony ATV had about $250 million of debt on it, at the corporate level. It also had much cash, around $100 million-plus, some of which was being distributed to Sony.

With these numbers, anyone could think: “put the cash aside, it would be whatever value you put on the ATV catalog less than $250 million of debt,  times 50 percent plus the $100 plus million of cash.”

Well no: a lot of that cash was being distributed, cucked out to Sony and Mr. Koppelman and many other people, many executives knew a lot was going to Sony.

The method used for calculating this point was to take the low end of the range, which generally banks do,  which was one billion dollars, take away 250, which gives 750, and half of that is 375.

Sony was sucking all that money off the top, that $250 million of corporate debt plus the cash distributed at their own discretion, a legit liberty that was included in the operating agreement. It was how the ownership of Sony/ATV was structured right in 1995. That was money that came off the top when it came to determining what Sony ATV members got. But for some reason, although Michael Jackson was indeed 50% member and a director of the board, did not have the correct distribution or sometimes received the crumbles left.

If the catalog were sold, possibly the operating agreement might not exist; therefore, the catalog would have a higher value because fewer expenses were laden into that catalog. That’s why Michael Jackson wanted to sell to a third party. Selling 100 percent of the catalog might have been more valuable because it would have taken out that “administration fee,” that Sony used to get according to the pursuant Sony ATV agreement, as understand how it operates. For example, Sony was charging to Sony/ATV the double of what EMI was charging to MJ when he was the owner of 100% of ATV.

So, here is crystal clear that media was feed by false statements, or they were in cahoots with the industry into smearing Michael Jackson’s reputation. There’s no doubt that in 2006 Jackson owned 50 percent of Sony ATV. Also, Sony Music was cheating on Michael’s royalties’ calculation of his personal intellectual property and Sony/ATV revenues.

The result of all of the above was a no binding offer from Fortress with a high-interest rate and elevated fees proposal. It also included a right of Fortress to buy half or all of Mr. Jackson’s interest in Sony/ATV in case of the loan defaulting.

These coming and forth caused due to the lack of collaboration of Sony and Fortress, resulted that on January 13, 2006, the forbearance period was extended to February 18, 2006, according to an Amended and Restated Put Extension Agreement, among Fortress, MJJ, MJPT, MJ-ATV, and Sony. And Michael Jackson’s financial situation incurred substantially more liabilities, including liabilities arising from his delay in obtaining the necessary financing.

The short-term forbearance period granted by the Fortress entities, however, did not eradicate the risk of a foreclosure on the assets of MJJ, MJPT, and MJ-ATV, which would in all likelihood put them beyond the reach of any future judgment creditor, absent a refinancing of the existing facilities.

A couple of weeks later, the Citibank proposal came across Fortress desk. Fortress had a small period during which they had to determine whether they wanted to match the Citigroup financing, as was their right, and in the end, they decided to align with it.

In short, MJ came nearly to signing onto closing with Citibank; and then around February, Fortress purported to exercise a right of last offer, which basically gave them the right to match any refinancing on substantially the same terms and conditions as the refinancing. And that exercise caused everyone to revisit the City financing and explore the legal ramifications of going or not going with Fortress.

Contrary to Fortress, the Citigroup offer was a serious, professional, and structured financial project. And compared to the others, the most convenient one. Michael’s signature on the documents was already arranged through Mr. AI Kahn’s office. As of January 26, 2006, Citigroup was the potential lender to the trust in connection with this refinancing arrangement they have planned. 

Michael Jackson in Hamburg to visit the Shleifer family in January 2006

Citigroup proposed a bankruptcy-remote structure to refinance the Bank Of America loans to which the MJ Trusts’ assets would be conveyed in return for the beneficial ownership of the new trust. Citibank would then loan to the newly organized trust $300 million, secured by the assets conveyed by the MJ Trusts to the newly organized trust. The loan proceeds would then be distributed to repay the MJ Trusts’ existing indebtedness under the BOA loans.

Citigroup imposed on Sony and its affiliates that the guaranteed advances had to be paid and that third-party offers were acceptable in the event of a sale procedure. The project also had taken out the negative covenant – the main worry during the Bank Of America financing – defining “ no Event of Default “the failure of the borrower to pay interest when due or accrued upon the occurrence of default attributable to any net or omission of SME, Sony/ATV or Sony guarantor, (any such approval in a clause or above not to be unreasonably withheld or delayed). 

It must be clear that Fortress is not a bank but a financial group acting as the main contractor and purchasing credit lines from banks, then re-selling them to its customers at a higher interest rate.  Fortress was “placing a bet” on Jackson’s debts; they were specialized in distressed debt, typically associated with overleveraged entities or those at risk of impending bankruptcy.’ The firm and others like it “are designed for wealthy investors looking for big returns on riskier bets.”

Distressed debts are risky investments, but they have considerable profit potential, either in the event of the entity’s turnaround or because, in a lending-to-own strategy, the investor would acquire the asset should the debtor fail in Fortress’s case, that meant a chance at owning Jackson’s share of the music catalog. Fortress’s acquisition of Jackson’s debt was a risk, so replete with profit potential that – after Michael’s death – an analyst questioned Bank Of America’s “wisdom” — not for lending to him but for removing the loan from its books. Because the point was that Michael Jackson’s assets were NOT overleveraged entities either at risk of impending bankruptcy. But someone or something was actively working behind the scenes to bring his assets in those conditions.

The Citigroup project structure – re-establishing a decent interest rate for MJ entities – had a risk-adjusted rate of return, and based on the risks associated with the transaction, it provided an “appropriate” return.

  • The return is the interest rate and the points that were charged on loan.
  • Risks were assessed: the unique risk in this transaction was the chance of not getting paid back due to an event of default.
  • Risk covering: having determinate that the collaterals over-covered the loan value, from the return side, it was balancing the probability of getting repaid in full or getting repaid with or without default and whether or not the interest rate and points you were getting compensated.

Comparing Fortress’s request to one month LIBOR plus 3.50 % spread and Citigroup at one month LIBOR plus 1.50 % spread, it’s evident that the return was not interesting enough for a loan sharks entity like Fortress. I’m sure there are other reasons for the acceptance of a conventional and marketable refinancing structure as per Citigroup’s offer.

On February 14, Fortress informed Jackson by fax that they wanted to exercise their first right offer, matching the Citibank’s offer. Originally the closing refinancing was on March 2; however, due to complex open issues, included of the creditors’ identifications, as well as establishing the clearance of all the titles in Michael Jackson assets being used as security, the date was postponed.

  • What were the reasons that moved Fortress to comply with a substantially conventional and structured transaction?

They answered not to want this lucrative and over-collateralized deal to sneak from them, but – having read the depositions available of the plaintiffs and the defendant, Sony’s efforts and suggestions in the whole negotiation is self-evident.

Meanwhile, Media ran around Europe in search of “signs” of MJ in Italy and then in the UK.

MICHAEL JACKSON MIGHT HAVE WANTED TO SELL SONY/ATV. BUT NOT TO SONY

On May 25, 2005, Michael went to court, along with his parents, to listen to Chris Tucker’s cross-examination. Meanwhile, the two trusts created by Fortress for the specific acquisition of Bank Of America was processing plenty of documents.

MJ’s loans with Bank of America were an investment deal at ten years, both expiring in December 2005. From the execution copies of assignment and assumption agreements, between Bank of America and Fortress, there was a fourth loan agreement with MJ-ATV Trust, which appeared to have no balance. Actually, there existed specific unfunded commitments within the loan of about 3.5 million dollars and was also contemplated 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 Yucaipa Company – Mr. Burkle organization, instructed to credit it to the MJ’s accounts.
It constituted the first Fortress refinancing of the Jackson Entities Bank of America Debt.

On May 25, 2005, the Jackson Entities entered into a new advance agreement with Fortress and requested an extension of credit for $25 Million. Fortress agreed to stop any action against the default under the BOA loan documents.

On June 13, the Jury reached the verdict. Michael acquitted on all counts! The trial is over, and on June 14 attorney Tom Mesereau gave an interview to Larry King:

With his passport back, Michael does not lose time, and already mid-June rumors tell he was in Paris with his kids to meet with documentary-maker Mark Stewart – the son of racing legend Sir Jackie Stewart. At the end of the month, he flies to Manama in Bahrain as guests to Prince Abdullah, a friend of his brother Jermaine.


When Jackson arrived in Bahrain, beside the open and pressing financial issue to refinance the now Fortress debt, he owed substantial amounts of money to his trade creditors, business and legal advisors, and employees. The situation precipitated Jackson’s efforts to seek new financing.

Pictures surfaced of MJ in Dubai for his birthday, along with Media comments of him trying to spend further money on useless amenities and in glittering parties.

Instead, MJ was around the Middle East with a Bahraini delegation to discuss and looking for fresh alternative refinancing. His middle east exilium was not a walk along the Arab sea.

At just one month of his acquittal back to back shitty events started again: 

  • July: Prescient sued MJ for $48 million for the direct Fortress acquisition of the BOA loans.

  • In New Orleans, there was a court proceeding in the Joseph Bartucci case. Michael was fined $ 10 000 for not showing at the hearing. The trial was later denied: it was another case of someone trying to extort money.

  • September: Michael had to go to London to give deposition of Marc Schaffel‘s lawsuit. Jackson lawyer filed a countersuit against Marc Schaffel, accusing him of misappropriating artwork, funds, and mishandled financial records. Schaffel was involved in“What more can I give,” a song supposed to would have raised 50 million dollars for victims and families of the September 11 terroristic attack and that Sony and some Jackson representatives lobbied to refrain the release. Schaffel was a well-known sex industry scumbag, and when MJ discovered his background, immediately ended the association with him. Schaffel was desperate to get the single release and was around the press, claiming he owned the song. In reality, he had no rights to exploit, distribute, or in any way interest in the master recording of ‘What More Can I Give.'” Shaffel was booted off of the recording project because of his lack of musical expertise and the rights to the song, was of Michael Jackson. He falsified books and records to try to get as much money as possible from Michael Jackson before the termination of his collaboration. 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 agreed to keep paying his expenses (including basics like rent and utilities) for another six months after letting him go.

  • John Branca filed UCC Financing Statements against the MJ Trusts in California. Branca claimed 5% of MJ-ATV’s membership interest in Sony/ATV and 5% of MJPT’s interest in the MIJAC Catalog.

Meanwhile Media reported a lot of fun and leisure. Michael and his kids back to Dubai. A great scandal was created when MJ mistakenly entered a “ladies’ room” in the Egyptian Court of IBN Battuta Mall in Dubai. The episode shows as an innocuous individual, in front of the opportunity reveals its wretchedness: the woman was a teacher.

Michael was shopping at the Emirates Mall in Dubai with Chris Tucker.

Michael was attending the Dubai Desert Rally Racing Tournament at Le Meridien Mina Seyahi Hotel in Dubai with a close friend and renowned UAE rally driver, Mohammad Ben Sulayem, and Saeed Hareb, managing director of the Dubai International Marine Club.

In Bahrain, Sheik Abdullah’s record label displayed posters advertising of 2 Seas Records single “Music to Heal the Pain” using images of the Katrina disaster and conveniently leaving out MJ’s name.

  • While in USA Dieter Wiesner filed a civil complaint against Michael and his company Triumph demanding $64 million for fraud & breach of contract of MJ Net Entertainment.
  • Good Morning America aired a recording of anti-semitic remarks during a phone call taped without permission two years before by Wiesner. The tape was given by the lawyer of Dieter Wiesner and Marc Schaffel.

Michael and family in Muscat (Oman) having dinner at the American Ambassador’s residence in Oman for Thanksgiving.

Most of Jackson’s efforts in the Middle East were to refinance his debts and liabilities, including the Fortress debts, and I call them debts and not loans because Fortress purchased a debt from BOA but did not provide any sort of refinancing project after that.

On November 26, 2005, MJ formalized an arrangement with AQ Business Consultants to assist him in obtaining new financing. AQ Business Consultants is a company organized under the laws of the Kingdom of Bahrain. The agreement provided that AQ would receive one percent (1%) of the financing committed to the project of loan financing. They commenced an aggressive effort to secure new financial commitments.
However, although they located several entities interested in the transaction, two main obstacles prevented a quick refinance securitization: Sony consent to Jackson’s for any further guaranteed loan and the Fortress right of last offer to provide financing for Mr. Jackson.

For example, Istithmar World, an investment group owned by the government of Dubai, expressed interest in providing Jackson with the necessary refinancing in exchange for his interest in the
Sony/ATV. MJ was not the idealistic fool that many fans still want to believe. He was wise and skilled when it came to business, also for the Sony ATV catalog. Being the visionary he always had been, he knew that times had changed quickly. With the right partners and at the right price, he was willing to sell part of his catalog to streamline his complicated financial situations. You have to keep in mind that being the owner of the 50% of Sony ATV meant for him to be also responsible for 250 million dollars of Sony/ATV corporate debts generated by stranger expenses and company management high fees.
However, the deal collapsed in the wake of Sony’s objections. Their refusal, clear out that Sony did not want any other partner, but MJ, waiting to put him in a corner and take the whole catalog at Black Friday discount price.

That’s the reason AQ’s initial endeavors to obtain finance before the date for repayment of the Fortress Loans failed. Sony didn’t help Michael Jackson to find a bank that would solve the problem. Actually, in the particular case of this refinancing, they had done their best to object and delay everything. By the documents I have read, I saw so much red tape to choke in.

Considering that part of his investments with Bank of America, were hedged, and Jackson activities generated royalties and right incomes wholly credited into the dedicated loan accounts, he had to support about $4.5 million monthly interest.

Which means Jackson had been paying more than 20 percent in monthly interest payments. That comes to about $50 million a year just in interest. That is familiar in the world of credit cards, subprime lending, and loan sharks and not commonly encountered by wealthy people with substantial assets. Michael Jackson had a first-class asset, and I could not believe he was paying the trailer-park credit card rates on $270 million worth of debt since I analyzed the BOA documents. What were they doing his financial advisers? What about Sony?

The financial calculation of these loans has a multitude of variabilities: there are managerial fees, compliance fees, and marketing expenses. All paid for by the guarantor. It means that 3-6% of funds are going out the window. And most of the time, these costs are not visible to borrowers entering these investments. It is also essential to understand how the mechanics of costs work. One of the things that can lead to increased costs of these funds are brokers, guilty of some degree of churning into their client’s account (and this is the Michael Jackson case), and it constitutes mismanagement. The industry sells performance and does not talk much about cost. And financial advisors are like any profession – there are good ones, and there are bad ones. But a competent advisor should alert you and explain what you are paying and whether there are better and cheaper alternatives out there. And Michael could not believe he didn’t have enough money to repay the loan. Here his testimony of 2006 June 12 and 13:

The Default on the Bank Of America Loans and the Forbearance Agreement

When it was clear that the MJ entities did not have sufficient funds to repay the loans, AQ representatives helped to negotiate an agreement under which Fortress agreed to forbearance any enforcement action based upon the existing loan defaults due in December 2005.

This agreement allowed MJ a forbearance period of 30 days, including January 16, 2006, extendable of additional 30 days that cost him a 1% the total due amount as fee.
Another condition included was a breakup fee of $2 million payable to Fortress if the refinances would have come from another party. Everything was nothing else than a copy/paste coming from the original Bank of America notes. The forbearance was that Fortress would stand down concerning their rights on loan.

The genesis of the forgiveness was the result of a negotiation that took place toward the end of December and involved AQ, as MJ representative, Sony, and Fortress.  Chief Financial Officer of Sony Corporation Rob Wiesenthal guided Fortress, due to the problematic comprehension of the “Put Extension Agreement” and the relevant amendment of Section 7.9 of the Sony/ATV Operating Agreement, which was part of the collateral package for the Bank of America loan. And part of the condition for extending to 60 days was the agreement by Sony to maintain their support under the put agreement for Fortress on the Sony/ATV loan of $200 million. What Sony had regarding the “put option” was an obligation, not a right. Fortress had the ability in loose terms to put the Sony/ATV interest to Sony and require Sony to buy the Sony/ATV interest for $200 million, and the “put option” was governed by a period that had an expiry. Since Fortress was giving forbearance on loan, they wanted to make sure that Sony’s credit support for the ATV loan would have the time associated with it extended as well.

  • December in USA Michael’s lawyer had to officially respond to tabloids reports of Tom Sneddon alleged investigating MJ for the use of illegal drugs. The law firm clarified that Michael prescription drug use is nothing illicit or illegally obtained.

  • MJ’s “Christmas gift,” that year, was a Court hearing in the Debbie Rowe’ s children visitation rights case in Los Angeles.

The year closed nibbling around the edges, and future perspective had obstacles premise to be solved. Meanwhile, media doodled and spread pictures of a careless Michael Jackson in disguises strolling around the Manama Malls with family and friends.

Sources:

Pacermonitor.com/case/16787632/Prescient Acquisition Group, Inc v MJ Publishing Trust.  

Hollywood, Interrupted: Insanity Chic in Babylon — The Case Against Celebrity by  Andrew Breitbart &‎ Mark C. Ebner 

https://www.eonline.com/news/52782/jackson-lawyer-plaintiff-had-no-right-to-charity-record.

 

 

 

 

 

 

WELCOME TO THE ENTERTAINMENT WORLD: CROOKS, CHARLATANS, IMPOSTORS

“Word of mouth is the best publicity. Nothing beats it”. And considering the countless passages of Michael Jackson’s financial papers in so many hands and in such a short time, I feel having to start beginning the story in a fairy tale fashion.

‘Once upon a time’ Prescient, together with Perfect Circle, contacted Copper Beech Equity partners and explained that Michael Jackson was looking to refinance his debt. Copper Beech Equity partners contacted Transitional Investment LCC and told them that Mr. Jackson and his entities were looking to refinance particular credit facilities. Transitional had a preferred financing relationship with Fortress Investment Group. Fortress was a company specialized in distress debt and asset-based lending Investment.

Displaying the discretion of a jackhammer, this bunch of idiots (I cannot find a better word to qualify them) had meetings and phone calls with some of Jackson’s former advisors. A practice that ignored the strict caution guidelines Michael expressed, especially regarding Koppelman/ Branca and without informing him.

So, let’s trench on through because the events happened in chains that brought up suspicious numbers of “randomness.”

In December 2004, under the request of the group guided by Prescient, Transitional provided a letter of intent (LOI) for a first bridge loan to be used to close the relationship with Bank of America, and a project fitting Michael Jackson’s desire to exercise the buyout option and purchase the 50% of Sony/ATV owned by Sony Music. The aggregated amount was 537.5 million dollars. The initial LOI referred to a senior secured credit facility for $420 million, the percent subordinated note for $80 million, and a redeemable convertible preferred stock for $37.5 million.

February 1st, 2005: Michael Jackson enters the court if Santa Maria where Jury selection takes place.

On February 1st, 2005, the LOI became a commitment letter for bridge financing. The commitment letter now being presented by Transitional Investors LLC as a joint venture partner of Fortress Investment Group.

Between January and February of 2005, Transitional met with the accountants, reviewed the financial statements, and evaluated the condition and the obligations of Michael Jackson, including his income and expenses.  The result was the below report:

From the documents, it appears immediately an agreement between Transitional and Fortress Credit Corp, represented by Chief credit officer Constatine Diakollas. The reason for the bridge facility was an entirely expected refinance of this preponderance with a comprehensive package that included providing financing for the acquisition of the other half of the Sony/ATV library. The commitment letter and the term sheets have three components: Senior bridge loan of 207.5 million, a subordinated bridge loan of 80 million, and preferred bridge stock of $40 million.
They initially wanted Michael Jackson to sign it. But between the various handlers, there was concern that there would take an extended time for him to sign another piece of paper that he would want to be explained. Then, accordingly, they kept as good the signature what they understood to be the advisor to MJ Publishing and Michael J. Jackson. Don Stabler.

Here now comes the beauty: from his testimony, Transitional Managing Director Mr. Shelley confirmed to having talked to Mr. Branca to explore the financial condition of Michael Jackson.

Structure and put in place that kind of refinancing package, would have taken some time that MJ did not have. BOA threatened to call the note, and such an event could have triggered a potential sale of assets. The group of handlers requested to put together and immediate refinancing for the credit line, On March 25, Transitional/Fortress presented a new LOI.

March 25, 2005: Michael Jackson in Santa Court. Testimonies about DNA found on adult magazine.

Clearly, their interest was not just lending money to Michael Jackson to allow him to recover and to pay off his obligations; In fact, that loan would be upside down, so they structured an investment, which would not usually have done, that would allow them to also participate In the future contemplated transaction which was the buying a partial interest in the Sony/ATV through several different operations.

On April 6, Jackson and Tom Mesereau attended Johnnie Cochran Funeral. There they found friends such as Reverend Jessie Jackson and supermarkets mogul Ron Burkle.
MJ was reluctant to the whole situation, and opened up with them regarding these financial transactions. He asked Mr. Burkle to help and revise the papers. It resulted in suggesting to MJ not signing the commitment and consequently taking all the duly actions with BOA blocking all authorization previously made to represent him except for his brother Randy Jackson and Mr. Burkle company.

The handlers supposed to have Michael sign the deal. Instead, there was an unpleasant discussion that ended with MJ invited them to get out of Neverland. When they left, Michael’s assistant phoned and told them to go and meet with Ron Burkle. The discussion was around the meeting and had to do with the Fortress deal and why they thought that was a good deal for Michael. Burkle told them that he didn’t believe that Fortress would be able to do such a deal because they didn’t have the money.

Michael was also supposed to signing off on loan secured against the Hayvenhurst property. In this regard, Mr. Burkle’s and his attorney Mr. Mortensen felt they could do better due to the interest rate being charged on that loan was too high. Still, considering there was not enough time to set up the loan documents, they could not provide financial information to have Michael’s FICO score generated, the right solution was to take what they had already opened.

As necessitated by the emergency, Mr. Burkle lent money to Jackson in a few days. He forwarded the cash to Allan Whitman’s account on MJ behalf, and bills could be paid. Mr. Burkle advanced over a half-million dollars without asking any type of guarantee. Jackson immediately reimbursed Burkle as soon as the funds were credited.

Meanwhile, Transitional worked on the refinancing documents with Fortress lawyers. On April 18, Fortress sent to the old group of handlers a 92 million Senior secured loan commitment and 3 million secured option purchase.

April 18, 2005, Michael Jackson goes to court with his mother Katherine

I insist on explaining the flow of events before the refinancing cause we are faced with 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 is 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 from your friend lost his house after 2006, you have to thank these kinds of financial companies.

Within the negotiations, the transaction comprehended a 1.5% to Fortress upon the commitment letter’s execution. 1.5% was on Prescient, for its role as advisor. And in case Jackson would not use the facility or some alternative financing were completed within a specified period after the agreement had been signed, a break-up fee of 1 million would have to be paid to Fortress. In short, if Michael Jackson signed this letter of commitment with Fortress and not get into financing with them, he would have to pay 1 million still to compensate the financial institution for the use of their stationaries. The offer nullified all the previous ones but did not include the obligation to pay the 9% break-up fee as liquidated damages, as outlined in Section 6 of the letter dated December 30, 2004, (which 9% break-up fee is comprised of a 2% break-up fee to be paid to Fortress and a 7% to be paid to Prescient as advisor). Fortress agreed to fund $3,000,000 before April 30, 2005, against an option to purchase 51% of Michael Jackson’s beneficial interest in the MJ/ATV Publishing Trust for $175,000,000. The validity of the offer was 90 days. Crook behavior? Definitely. You can read the whole document here.

Here the compensation formula developed by Lehman Brothers in the ’60 for investment banking services related to the finder fee that financial brokerage companies used at that time.

-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 was and still is 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. 

Something was off with that financing, and Michael Jackson did not sign the commitment letter. All the conversations with Fortress ceased as soon as Yucaipa Company controlled by Ron Burkle, got involved with Michael Jackson. Fortress conversations with them began after the purchase the loan from BOA. In fact, Fortress had other surprises in its sleeves.

Unexpectedly, the first week of May 2005 the Media announced Fortress acquisition of the Bank Of America’ Michael Jackson loans leaving the handlers high and dry. It came out of the blue even for Jackson. Prescient’ people read it in the newspapers and alerted Transitional.


During his testimony, Shelley was asked if any sort of complaint had been addressed to Diakollas. He admitted he asked: “Don’t you think you owe us at least our fee for the purchase under our agreement, our joint venture agreement?” Diakollas went through the preamble, and responded, “I thought we had a better relationship than that this. That’s right? Other people, not you, showed us the deal.”
Diakollas was correct. The proposal came out from another source: it came nothing less than from Jane Haller, Michael Jackson personal banker.

Fortress intentionally withheld from Mr. Jackson any written agreement between the Fortress entities and Jackson’s entities and did not tell anyone that it was negotiating with Bank of America the loan purchase. As already explained, Fortress was still in active negotiations with Michael Jackson and his people concerning the $92 million loan facility on April 17th and 18th. Yet, by May 3, they executed assignment and assumption agreements with Bank of America.

  • What was going on during those two weeks between April 18 and May 3? It’s possible that Fortress thought, “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 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.

In the end, Michael Jackson was the one that received 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 for the current status and some further pieces of information that we require from you”.

Some other factors might have motivated Fortress business decision to pursue the purchase of the BOA loans directly from BOA. In fact, in April 2005, MJ needs to cap off a relatively small interest payment of about 600’000 dollars due on the credit line with Bank of America, and funds were not available to cover it. As a result that Bank of America called the note to actuality accelerate the default. At that point, MJ was “technically” in default with the bank.

May 3, 2005: Michael Jackson enter to Santa Maria Court to listen testimonies of Steve Robel, John Duross & Rudy Provencio.

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 line was triggering a mechanism that competitors were waiting for years, any of them with their own reason. Still, all with the same intent: divest MJ from intellectual property ownership. Like Koppelman with the revised offer of Goldman Sachs, Branca, with two different offers and Sony, that drove the bank actions behind the curtains, waiting for the step that, in the end, would have brought to bankruptcy procedure.

Fortress’s handy and straightforward solution to purchase the loan directly rather than bid against anybody else or continue to negotiate something according to the commitment letter that was existent and issued by them with MJ while entering the confidentiality agreement had been a winning move.  That what Mr. Burkle suggested that happened. Whether that’s plausible or not, the reader can decide it.

However, the Fortress purchase was not a refinancing yet. They had to find a bank to pay the loans to Bank of America.

 

MJ:”SOMETIMES PEOPLE DO THINGS BEYOND THE SCOPE OF WHAT I TELL THEM TO DO”

On January 16, 2004, his formal arraignment drew a horde of news media and in Santa Barbara County. The press did not cease to put their nose in his business and in what they called “his mysterious finances.” Depending on the source, Jackson was either spending his way into bankruptcy or presiding over wealthy music and real estate empire.

In reality, MJ had been the target of numerous lawsuits over the years, many of which cost him millions. ( Lee, Sotheby’s, Avram, Vaccaro, Royalty Claim lawsuits dismissed with Motown and Universal). The only successful trial was one of five former Neverland employees that lost a wrongful termination suit against Jackson and were ordered to pay $1.4 million in attorney fees and $60,000 in damages. A jury rejected claims that the employees were fired for cooperating in a probe into the 1993 molestation allegations.

When in March, the Arvizo’s were deposing before the Grand Jury, Michael Jackson had to increase his credit with Bank of America on the credit line guaranteed by MJPT (Michael Jackson Publishing Trust). The lending aggregate principal amount was $72,500,000 at that point. 

Here too, The New York time through Al Manik’s interview, published misleading pieces of information one month before the documents were filled and signed. This third amendment and restated loan agreement of 2.5 million dollars had a specific use, which was: to fund the Minimum Interest Reserve Account, to finance the Borrower’s expenses and professional expenses, to pay the Guarantor’s taxes, to pay the legal fee and approved Invoices.

I wonder which documents provided the “insiders” who diligently fed Media jesters. From 1997 on press was wild and meticulous in detailing over MJ’s crazy borrowing.

Too bad that these assets were already pledged under the bank agreement. By the documents disclosed in various financial lawsuits, it’s clear that numerous agreements were entered into in connection with the MJPT Loan, including, among others, the MJPT Trust Agreement and a Security Agreement between BOA and MJPT, dated September 29, 1999. MJPT was restricted in disposing of, transferring, or selling the MIJAC Catalog or the Administration Agreements until full payment and performance of all obligations under the Loan Document. In short, MJ could not take any action before the loan would not have been fully paid. Neverland was pledged to BOA under this agreement, and if it was not enough, a personal guarantee of MJ was imposed.

2004 April 1, Humanitarian Award

On April 2, 2004, Mark Geragos and Ben Brafman brought a massive amount of pieces of evidence into a Santa Maria courthouse for the preliminary hearing into the Jackson case. The material impacted the credibility of witnesses. One of the evidence they obtained was the Arvizo family court documents in the JC Penney case.

On April 11, Medias reported the allegations of Daniel Kapon, a young man who claimed to have been abused by Michael when he was a kid. It turned out that the Santa Barbara Police Department did not find him credible and closed the case after investigating it.
Regarding the episode, Geragos said: “This appears to be a malicious attempt to undermine Mr. Jackson’s right to a fair hearing on the presently pending charges.”We have to question the timing and purpose of this 20-year-old false allegation being raised at this time.”We believe that this smear campaign is driven by money-hungry lawyers, seeking to capitalize on Mr. Jackson’s current legal situation.”

But everything started to become too dangerous. Gavin Arvizo deposition had been leaked, and several of Jackson’s associates faced charges of conspiracy and obstruction of justice for allegedly threatening the child’s family accusing the MJ molestation. The co-conspirators were: Marc Schaffel, Dieter Wiesner, Ronald Konitzer, Frank Tyson (Cascio) & Vincent Amen.

Michael, who was in Orlando, learned that the Grand Jury had indicted him. He asked his brother Randy to intervene, and Tom Mesereau, that knew Randy for many years, eventually came on board. On April 25, Michael announced that he had changed his legal team. And a few days later was the Nation of Islam turn.

I’m going to introduce a summary of a series of testimonies collected in one of the scummiest lawsuits MJ had to confront with. It would have revealed almost illegal acts of many industry big names and open an embarrassing can of worms. So, most of the media wisely shirked the real content deflecting public over gross gossip against his brother Randy and the charlatans’ group who tried to defraud MJ. By the testimonies, I can say that Randy helped as much as he could. Still, most likely, MJ’s financial structure was beyond its capabilities, and he got into a bunch of crooks with a poor understanding of the whole situation. 

This transaction became a sort of pyramid selling. Time wasted to assure everyone the “right percentage,” too many people involved, and not following the MJ request of discretion in disclosure of pieces of information. It was a real mess that allowed who had an interest in having MJ bankruptcy to organize themselves and buy some time.

These people had to go through examinations and cross-examination in detail, offering a clear understanding of the dirt that was behind MJ finance troubles. Their statements provide and visualize the vultures that stalked Jackson for about all his life, the way Sony directed and sanctioned his loans from the beginning. The not precisely crystalline attitudes of some of his historic and essential former collaborators, the percentages and bribes applied to his investments, rates that belong to usury banking crimes, prosecuted and convicted in many civilized countries. And last but not least, it shows what Michael Jackson went through during the preparation and all along with 2005, as if the trial and the risk of lengthy detention were not enough.

Michael Jackson at the Santa Maria Court House in Santa Maria California on August 16th, 2004
Fame Pictures, Inc – Santa Monica, CA, USA – +1 (310) 395-0500

 

During the summer of 2004,  Michael Jackson was preparing to be on trial in connection with the criminal matter involving allegations of child molestation. He was understandably preoccupied with the criminal case and, therefore, could not personally handle his financial and business affairs.

Michael had fired his prior managers, except a few, including the accountant Mr. Whitman. MJ put his brother Randy Jackson in charge of securing a partnering entity to assist in refinancing particular then existing debt. Debts were owed to Bank of America by two of MJ’s Trusts, the MJ Publishing Trust (MJPT), and the MJ-ATV Publishing Trust (MJ ATV).

Randy hired Don Stabler in July 2004, to assist him with the financial management of Michael’s affairs. Mr. Stabler had had an ongoing relationship with Randy Jackson for services concerning tax return. Stabler’s tasks were to order documents and reduce costs.

In September of 2004, Jackson was in a horrific financial crunch.  At the time, the principal concern was the credit line.  Bank of America had an open lockbox and was sweeping all of Michael Jackson’s income into it to repay the interest on those loans. All of the royalty payments and all the other sources of income that Michael had were swept into that BOA account proceeds, and they shouldn’t have done it.  They were, in essence, overreaching. Moreover, the loan terms and conditions were extraneous and very difficult for Michael to manage his own affairs, and as a   result, they wanted to get out of them.

The situation was pretty much tapped financially. There was not enough money to pay the monthly expenses; there were many of the costs for people staying up in the Santa Maria area being charged to Randy’s credit card. Randy’s credit cards had been run-up to the max. Not only his credit cards, but Randy had used the credit cards of friends of his or people who were assisting him during the trial and his representation of Michael.

 (Photo by Hector Mata-Pool/Getty Images)

 

Tom Mesereau and Susan Yu needed funds to bring experts on due time because they feared that the judge would prohibit them, if not careful, in bringing them on time. In fact, most of the resources were to just get to Mesereau team the money that they needed to hire the experts or to retain them. Throughout the trial, Susan always thought that there was more money than we acknowledged. And she had a hard time believing that Michael Jackson was cash poor.

Due to the enormous expenses derived by the upcoming criminal trial, MJ was looking to refinance the Hayvenhurst property because it was the one asset that was free and clear that could get income. So in an attempt to circumvent the covenant of Bank of America line of credit, it was asked to Janet to get the loan against the Hayvenhurst property. However, she could not handle it.

In October 2004, Mr. Stabler and Randy contacted Robert Pryce of Perfect Circle Entertainment, Inc. with the intent to find sources or contacts in the financial industry to enable refinancing of the BOA debt.  After reviewing the documents received relating to the Bank of America financing and the securitization against the Mijac and the Sony ATV catalogs, the consultant expressed a specific concern detailing various aspects of the documents, including the trust. The analysis was focused on the potential jeopardy to the Jackson Entities’ ownership interest in the Sony ATV Catalog. 

The refinancing purpose was to restructure the outstanding BOA Debt and provide much-needed liquidity to MJ.  Also, the Jackson Entities and their advisors believed that the BOA Loans’ terms and conditions were extraneous and very difficult for MJ to manage his own affairs.

Given the loan amount, the asset of Sony/ATV was more than sufficient. There was no need to have Neverland as a pledge, as well as there was no need to have MIJAC as securitization. Bank of America loan guarantees seemed like it was an overkill request. The Sony/ATV catalog was worth in between one billion, possibly 1.2 billion, which means that the 50% owned by MJ would have an average value of the half. So, why did they need to take all his assets? Something was not right with these loans, and further testimonies will explain it.

Perfect Circle located Prescient, who was “apparently” engaged by the Jackson Entities as an agent to secure financing and “take out” the BOA debt, keeping as security asset the MJ/ATV Trust only. If the loans were funded, Prescient would then be entitled to a fee.

The initial scope of the loan was the $72,500,000 loan of the credit line. That was the focus when these people got involved. The loan was imminent for a disaster that needed to be taken care of first. And that was supposed to be the mezzanine or bridge loan of 90 million dollars. It was the one that could get MJ out of trouble. As previously stated, the $200  million loan was not in jeopardy because it was secured by his interests in the Sony/ATV catalog. 

The line of credit caused everyone the most heartburn. MJ accounting had to provide to BOA with monthly reports because there was a covenant in Michael’s line of credit saying that if at any point in time his accounts payables exceeded $2 million, Bank of America would call the note. So Randy’s role was to try and make sure it kept it below the $2 million. Any funds that either Mr. Jackson received or his trust would go through Bank of America. They would then take the portion needed for the loan. And the amounts not required would then be forwarded to a bank account controlled by Allan Whitman at his firm and then used for paying expenditures.

In that line of credit agreement, there were several covenants, any of which could have triggered a default, which would have caused damage to Michael. One of the most uncommon conditions was that Bank of America finance documents required Charles Koppelman to remain as trustee in the trust governing that asset for so long as the loan existed. It also had Michael Jackson to pay Mr. Koppelman a fee of 1 million dollars a year for his consulting relationship for that trust.

Why MJ had to pay someone $100,000 a month? What did he do for him? What did he get for it, when there were other more pressing matters not being paid. Mr. Koppelman was not a trustee of the MJ Publishing Trust or MJ-ATV Publishing Trust. He was merely a consultant tied into the Bank of America loan, which required him to remain as a consultant and paid separately by Michael Jackson, not for his services on an annual basis, paid quarterly. And that troubled everybody because Mr.  Koppelman was providing no services for the fee he was receiving, and Michael Jackson didn’t have the money to continue to pay him.

In 2003 Jackson hired Charles Koppelman to do some kind of a deal or loan to restructure his contract with Bank of America before the expiring date loan. Mr. Koppelman had at least a two-year head start on working on something to do just that and had people in place who were pretty much ready to go. In fact, they had tendered an offer that Michael flat out rejected.

What was Charles Koppelman’s involvement regarding Michael Jackson and the Bank of America loans, again, still staying in late 2004? None: Koppelman was still trying with Goldman in either buying out Michael Jackson’s interest or financing it in some other way.  John Branca also wanted to introduce a deal with a publishing group called Blackstone Group while helping Koppelman with Goldman. But Michael Jackson was specifically interested in terminating the employment relationship with Koppelman. As a result of that fact, Koppelman was fired by Randy Jackson and by Don Stabler.

Bank of America notified them that it would cause a default in the loan documents and that they could not do that first. Secondly, if they didn’t pay Mr. Koppelman his fee as required under the loan documents, that would also cause a default on the Bank of America loan documents, which would give them a basis for calling the loan. The default would cost MJ a 1 % rate increase and possibly 10 million upfront penalties.

Michael believed that the trial’s primary reason was happening, and going forward, was because of a conspiracy connected with the business involved, and he didn’t seem to trust many of the people around him. Michael was extremely concerned that he had the potential that this conspiracy involved taking his catalog of music Sony/ATV and, the major part of this conspiracy had to do with his ownership of the catalog of containing the Beatles music.

Michael was also disenchanted with Sony Music and how it was managing the Sony ATV catalogs. He also felt that Sony Music was siphoning his proceeds, those that he should have received as part of his interest from the income of that entity and securing it for his own profits on the one hand and expending it for extraneous costs and expenses on the other for purposes of the management of the catalog.  So, at the appropriate time, he wanted to buy out or somehow remove Sony from the transaction.

Barlowe and Dash also talked of MJ’s personal catalog and his possible interest in wanting to be involved in companies on Wall Street that might be interested in financing. There was contact with various brokerage firms and a hedge fund. A couple of the companies expressed an interest but had reservations due to Michael’s pending trial. That was a problem for several companies. An example was when Dash reached out to GE Capital to financing for the BOA debt. GE was very interested in the deal but very concerned about the status of Michael Jackson and the negative publicity that was being generated with it. In the end, no transaction was ever effectuated.

In December 2004, another company appeared in the already crowded scenario. Transitional Investor LLC. The task is the same: refinance the permanent loan, the credit line financing. They added an offer for Michael to purchase the 50 percent interest of Sony Corporation in the Sony Music ATV company. Meanwhile, still in December, a meeting regarding Sony/ ATV catalog was held in New York, and Al Manik, one of the two trustees of the MJ/ATV Trust, sent an email informing he only flew charter. Clearly the expenditure was not authorized this time.

In between November and December 2004, some of Michael’s friend Hamid Moslehi files a civil complaint about no payment followed by a crazy Dr. Sebi and Marc Schaffel.