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SFX Borrows $20M At 20% Interest, Uses Promoter ID&T As Collateral

sfx sillermanSFX is openly exploring bankruptcy and the sale of assets to avoid implosion. But to buy some time, CEO Robert Sillerman and a board of directors that he seems to have under his spell have borrowed $20 million under very unfavorable terms to keep the company afloat.  

By Dave Brooks, editor of the essential live music industry trade Amplify

We’ve finally discovered the details of SFX’s lifeline loan announced late last week. SFX CEO Robert Sillerman announced in a filing Thursday that his company would be taking out a $20 million loan from Catalyst Fund Limited Partnership. SFX had planned to borrow $30 million from Catalyst late last year, but that deal collapsed after Sillerman failed to provide his share of financing.

sfx sillermanThe borrowed money would not come cheap — SFX was borrowing the money at 20% annual interest and had to put most of its European holdings up as collateral including Belgian firm ID&T which promotes Mysteryland and Sensation. SFX has one year to pay the loan back.

“It’s basically a Band-Aid for the next few months,” former investor Steven Azarbad told the New York Business Journal. Azarbad is the co-founder of Manhattan investment firm Maglan Capital and exited SFX earlier last year. “They have this facility to give them more time to get their affairs in order, but it does not stop any bankruptcy talk in my mind,” he added. “It’s just a question of when.”

SFX spokesman Edmund Tagliaferri told the New York Business Journal “The $20 million is for current operations.”

Given the company’s string of defaults, it’s not hard to imagine a scenario where the company defaults on their loan and loses most of its European brands

Below is a complete list of SFX Dutch and German properties being used as collateral in the deal: SFXE Netherlands Holdings B.V., SFX Europe B.V., ID&T Holding B.V., ID&Q Licenties B.V., Q-Licenties V.O.F., ID & T Trademark B.V., Q-Dance Licenties B.V., DTW Holding B.V., i-Motion GmbH Events & Communication, B2S Licenties B.V., B2S Management B.V., and SFXE International Holdings C.V.

On Wednesday, S&P once again downgraded SFX’s credit rating, this time to junk status. In the event of a default, S&P said lenders would likely be able to recover 30-50% of the principal of the company.

“The downgrades reflect our view that SFX’s liquidity and cash flow metrics will continue to significantly deteriorate, and we expect a payment default to be a virtual certainty, regardless of the time to default,” said Standard & Poor’s credit analyst Khaled Lahlo. “We believe a restructuring or bankruptcy could occur within the next six months, and there is a high likelihood that SFX would miss the $15 million senior secured coupon payment due in February 2016 because of the liquidity crisis it is facing.”

Check of more from Dave Brooks on Amplify

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