The MasterBlog: The Pop Star and the Private Equity Firms
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Monday, June 29, 2009

The Pop Star and the Private Equity Firms

JUNE 26, 2009, 9:18 AM

The Pop Star and the Private Equity Firms

Michael Jackson delighted people around the world with his music, inspired countless amateur moonwalkers with his moves and had an untold, but surely huge, effect on the sales of individual white gloves.

The pop superstar, who died unexpectedly on Thursday, also kept a lot of people in high finance very busy. His wealth, and, later in his career, his expanding debt, became fodder for deals with private equity firms like Fortress Investment Group and Colony Capital as well as big banks like Citigroup and Bank of America.

In the process, his fantastical Neverland Ranch in California was nearly put on the auction block — saved only when one investment firm swooped in to buy the related debt from another firm, with hopes of backing, and profiting from, a revival of Mr. Jackson’s career.

A lot of Mr. Jackson’s monetary dealings have been conducted in private. But several of the pivotal moments have been described in media reports over the years.

Driving many of the deals was Mr. Jackson’s increasingly unmanageable debt load — something that private equity firms can probably relate to these days.

A 2006 article in The New York Times said the principal drains on Mr. Jackson’s finances may have been “monumentally unwise investments that apparently produced equally colossal losses” — and, later, the payments to service his debt.

A financial adviser to Mr. Jackson described how he might have frittered away $50 million on things like amusement-park ideas and “bizarre, global kinds of computerized Marvel comic-book characters bigger than life.”

In 2003, Fortress Investment, a private equity and hedge fund firm that has since gone public, bought some of Mr. Jackson’s loans from Bank of America after the pop singer missed some payments. Shortly before Christmas in 2005, Fortress threatened to call the loans because of his delinquency, The Times reported.

A few months later, a new deal was reached, as part of a $300 million refinancing structured by Citigroup.

Mr. Jackson’s financial problems continued, however, and in spring of 2008, it looked as if Fortress would foreclose on the Neverland Ranch. But Colony Capital, a private equity firm led by Thomas Barrack, stepped in to buy Mr. Jackson’s loan from Fortress, averting an auction.

A few months later, the deed to Neverland was transferred to Sycamore Valley Ranch Company, a joint venture between Mr. Jackson and Colony.

Just a few weeks ago, Mr. Barrack expressed optimism about Mr. Jackson’s career and his plans for a concert series in London. “You are talking about a guy who could make $500 million a year if he puts his mind to it,” Mr. Barrack told The Los Angeles Times.

While the wrangling over Mr. Jackson’s Neverland Ranch was among the most visible signs of his financial troubles, the debt ran far deeper. Over the years, he amassed hundreds of millions of dollars in other loans to finance his lifestyle.

The collateral for those loans is not his real estate, but Mr. Jackson’s stake in Sony/ATV Music Publishing. It’s a valuable asset: It holds a portfolio of thousands of songs, including rights to 259 songs by John Lennon and Paul McCartney.

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