Intellectual Property & Music Business

MICHAEL JACKSON’S 2006 REFINANCING ASSETS: GIVE US ALL YOU OWN

This blog is a continuation of MJ 2006 refinancing assets: the Sony- Fortress-obstacles. I want to highlight that the clause Citigroup imposed on Sony clearly must have come following the examination in detail of Michael Jackson’s Bank of America accounts statements, which had highlighted payments shortcomings of royalties and revenues of MJ 50% partnership Sony ATV. So, contrary to what the press kept writing, it’s not hard to deduce that when Michael Jackson screamed at the world, his record label was screwing him about royalties accounts and not crediting him the money from his Sony / ATV stake, was right.
The new agreement that Fortress had to embrace contained explicit instruction for the Sony group: Michael Jackson Sony ATV revenues had to be paid in due time, and third-party offers were acceptable in case of the assets sale. Also, MJ companies would not be penalized to pay additional interests if no payment would have been caused or neglected by the Sony Companies, which was the main problem he had for ten years during the financial relationship with Bank of America.

The structure of MJ Group entities changed as per these below tables:

After Fortress confirmed the intention to exercise its first right offer by matching the Citibank project, it started the complex procedure to establishing the clearance of all the titles of MJ assets being used as security, including the creditors’ identifications.

Mr. Branca UCCs

During its due diligence process for the refinancing, Fortress was already aware that on September 27, 2005, John Branca, former MJ attorney, had filed UCC Financing Statements against the MJ Trusts claiming an interest in the assets. Given that Branca appeared as a secured creditor of MJPublishing Trust, Fortress and Sony were apparently uncomfortable completing the refinancing and restructuring of the Jackson Entities’ debt. Settling the Branca claim was an essential precondition for the refinancing to close because it directly affected the collaterals being used as security.

• A UCC-1 financing statement (abbreviation for Uniform Commercial Code) is a legal form that creditor files to notice that it has or may have an interest in the personal property. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets to repay a specific debt with a particular priority. Such notices of sale are often found in the local newspapers. Once the form has been filed, the creditor establishes a relative priority with the debtor’s other creditors.

For some reason, Mr. Branca decided to join the “MJ bankruptcy fansite club,” and asserted to possess a membership interest in Sony/ATV and MIJAC Catalog for about 50 million.
Here below the detail of the figures requested by Branca’s to MJ.

  • 16’121.943.73 principal capital. 
    14’089,984.33 and additional amounts for the following reasons:
    1’621,943.73 representing his percentage on the 300 million Fortress loan then discounted to 589’,894.33
    1’032,049.40 representing attorneys fee
    13’500,00.00 being the principal balance

All items were contested by Michael lawyers except the principal balance amount of 13’500,00.00 that was accepted and paid.
In case of foreclosure or bankrupt of MJ during the refinance Fortress period, John Branca’s request included an amount of 4.5 million-plus interests payable by Sony Corp. Mr. Branca’s document specified that – if the amount collected in the bankruptcy proceedings had not had enough balance to pay his allegedly 4.5M – he would get the money in installments from Michael Jackson’s royalties up to March 2008.

Actually, Mr. Branca had an agreement as an agent since 1993, allowing him to take an overall 5% over Michael Jackson’s whole business. In addition to it, he was one trustee on MJPT trust.
Strange that he still had a signature over the trust in 2006; when MJ had him fired in 2003, he was asked to resign from all the trusts and return all the legal documents. He left the MJ/ATV trust, but nobody cared to check if he was out from all the other entities. Here Michael Jackson answers concerning his the trustees in connection with his trust entities:


White and Case law firm followed the matter. The unpleasant story was liquidated and closed for good on April 13, 2006, with 13.5 million representing some unpaid legal services to his law firm and the official mutual release agreement to give back all Michael Jackson legal documents.

However,  Mr. Branca’s disappearance from the creditor’s line meant to mortgage Neverland once again because Fortress refused to add amount the principal loan that was enough overcollateralized to be enlarged by a 20 million. Instead, they opened a separate mortgage procedure on Neverland property.

Before approaching the specific issue, let’s face for good, how misleading the media were towards MJ. Fabricated headlines that became a relentless smear campaign that wanted him ruined and on the verge of bankruptcy since 1995.

To confirm the above,  read what happened on the morning of April 13, 2006. Fortress had not even made the loan disbursement – the closing of the transaction occurred in the afternoon of the same day – but somehow, the press spread the news that Michael Jackson to have the new loan done and had to agree with Sony the sale of part of his 50% stake in Sony/ATV. The Prescient litigation lawyers were astonished after reading in the press. Nobody knew nothing about the turn of events: they had to interrupt the deposition because there was no such document within the court papers.

The testimony of Mr. Daniel Groppel – then Managing Director of Fortress Corporation –  reviewing an exhibit related to the Prescient lawsuit, was an enlightening reading.

It must be clear that Fortress, though purchased in May 2005 the Bank of America loans, had not yet refinanced the loan itself, so to give an extension, all conditions had to match with the Bank of America package of collaterals.

The document was nothing less than the negotiation that took place toward the end of December 2005 when MJ’s team asked for an extension of time to stop the payment due to Bank of America then purchased by Fortress Investment.

Below  “Put Option” clause as per Sony/ATV Operating Agreement on December 20, 2005.

The media divulged messy and selective news. In this respect, one wonders what kind of document was delivered to reporters – and above all, who instructed to give away these crappy masterpieces worthy of winning the Pulitzer for the trashiest journalism of the decade? If ever there was one.

As I said before, the refinancing with Fortress was already agreed upon but not concluded. But somehow, the lawyers and all the people involved found the below headlines all over the international media.

Everybody can remember headlines such as 

(published on Fox News and signed by R. Friedman) trumpeting that Michael Jackson will give up a part of his most prized asset for 200 million to Sony Corp.

This lawsuit’s documents show that what the media have been reporting since 2002 about MJ’s investments -from Bank of America to Fortress – are lies that have been deliberately released to mislead the public about MJ as a person. All the narrative about this cause is approximative and manipulated and has been set-up since the beginning.

The executed copy of the Credit and Security Agreement between Fortress Credit Corp and Michael Jackson Entities was a 35-page document consisting of five main articles and 20 sub-sections. The first article describes the definition and interpretation of the form.  Here the Sony Purchase Option:

The so-called purchase Option is nothing else than the Put option.
The put option was inserted at the beginning of Sony/ATV full administration of the ATV catalog.

It has been inserted in the third amendment of the Operating Agreement on December 23, 1998. The date coincided with the end of the ATV administration contract MJ had with Emi.

During the Fortress refinancing, the put option came into force three months after the loan disbursement date and remained in place until the end of the loan. The reason was that from May 2 up to July 30, 2006, the option to purchase the Sony shares in Sony/ATV was on Michael Jackson’s side, as per the dates agreed in the previous forbearance agreement. In jargon, it is called the baseball arbitration.

The put option was exercised by both parties for a limited period and was there to protect all parties’ interests. The purpose of keeping up the undertaking to the end of the loan was additional collateral representing the face value of the outstanding principal amount of the loan. The cost of this other collateral guarantee was for the MJ account.

The clause was a sort of first auction price, and in case of opening of the proceeding – subsequent rules had to be applied to get the real and commercial value of the asset.

Mr. Groppel, in fact, said:

And he was talking about the company corporate debt, not of Michael Jackson supposed debt with his record label.

On top of all, the put option amount represented a collateral guarantee to the principal amount of Michael Jackson loan and not a pledge over his 25% as the media insistently reported.

The 1995 Operating Agreement and its relevant amendments show the deal’s details and confirm that Sony never had a purchase option that they could exercise no matter what. It was always for a restricted time, and in case of no execution, the same option turned automatically to MJ and vice versa (in the context of the operating agreement).

It’s also understandable why both parties never purchased each other at that time. In fact, during the ten-year partnership, the company’s value grew starkly – and neither Sony nor MJ had the chance to pay each other such significant amounts. MJ suffered big losses due to bad managers, who stole and invested in questionable business endeavors (Not to mention the 2005 criminal trial that exhausted his vital energy and personal money. On the other hand, Sony was in financial distress since 2002 and had another deep crisis in 2008, and still today, some of its divisions are in bad shape.

As you can see, MJ’s financial transactions are referred to as investments – not loans, which is what this was. When Robert Holmes à Court sold ATV Music to Michael Jackson, documents show that MJ arranged a 30 million loan with Chemical Bank to facilitate the purchase, before transferring the ownership of Northern Songs to Nassau in the Bahamas – and appoint two local bankers to the board.  

The whole ATV group was acquired (including Bruton Music Ltd., ITC Filmscores Ltd., Marble Arch Music Ltd., and the long-established publishers, Lawrence Wright Music Co. Ltd.). There is no clear documentation of the total price paid, although press reports indicate Usd. 47 million.

The money of these transactions was used to make investments, pay corporate bills, lawyers, employees, offices, and business expansions – not to buy personal cars or shopping antiques, as MEDIA and some so-called friend claim.

But Sony/ATV structure was harmful to his finances from all points of view, and his money somehow kept disappearing, and the Citicorp dedicated chapter related Sony payments confirm so.

This Michael Jackson financial lawsuit –forgotten in the court archives’ depths confirms that investigative journalism no longer exists that MEDIA lives on financial connivances with the corporations and doesn’t check the sources. Inside these documents, there is enough material to overturn the news on Jackson’s economic problems.

It is also the key to believe Michael Jackson’s words when he was telling: “They want my catalog…. there is a big fight for it”. He frequently addressed these issues. And when he passed away, music producer Mr. David Zard and Michael Jackson’s former manager for the History tour, Tarak Ben Ammar, mentioned how Sony mismanaged his finances. The last one was Dieter Wiesner in his book Michael Jackson: The Real Story: An Intimate Look Into Michael Jackson’s Visionary Business and Human Side.

What the reader sees on this blog is public material and available to the press since then. The sealed records of this lawsuit had been destroyed on 13/10/2011. But almost nothing was divulged by the media. After the closing of the case, few headlines reported Michael Jackson press release through his PR people.

The point is that Michael Jackson was a target, and Sony, an influential group not in the business of exclusive gossip headlines. Michael Jackson was the biggest victim in the history of that type of journalism.

After twenty-four months, Fortress refinancing was in place and disbursed as well on April 13, 2006, although it didn’t solve Michael Jackson’s problems. The MIJAC catalog was still linked to the whole loan package and potentially at the mercy of Sony.

Stay with me…

Sources:

https://en.wikipedia.org/wiki/UCC-1_financing_statement

Rockmine.com

pacermonitor.com/case/16787632/Prescient_Acquisition__Group,_Inc_v_MJ_Publsihing_Trust_et_al  2005/2007

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