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SFX finally enters bankruptcy
By Chris Cooke | Published on Tuesday 2 February 2016
In a move that will surprise, well, precisely no one, EDM (low)powerhouse SFX yesterday filed for Chapter 11 bankruptcy protection in the US, announcing a plan to wipe clean much of the flagging festival promoter’s debts by creating a new privately owned company controlled by the firm’s creditors.
The downfall of SFX, the third big entertainment business founded by industry veteran Robert FX Sillerman, has been a long drawn out affair.
Having quickly built up the world’s biggest dance music empire through a rampant and expensive acquisition spree – via which he took control of many of the world’s biggest dance music festivals, digital store Beatport and an assortment of related businesses – Sillerman convinced Wall Street that, following the EDM explosion in the US, this was where the smart money should be invested.
Despite being something of a maverick, Sillerman had a good rep, having previously built up the venue business that formed the core of what is now Live Nation, and then another profitable music and media business focused on TV formats, talent management and brand licensing. But, alas, this SFX venture didn’t got so well.
In terms of the public spectacle, the downfall began a year ago when Sillerman announced his plan to take SFX – which he’d only floated in 2013 – back into private ownership. Investors expressed concern about the plan, and then about wobbly financials, and then about Sillerman’s leadership. With all the insecurity, the firm’s share price tanked, making its $300 million+ debts an increasingly big problem.
With Sillerman’s buy-back plans aborted, twice, and no one else seemingly ready to swoop in and buy the business, last month SFX announced that it had appointed FTI Consulting to come in and restructure the company and its debts, aka a last ditch attempt to rescue the firm, which was now defaulting on its loans.
Yesterday’s announcement is the conclusion of FTI’s work. The company said it had reached an agreement with “an ad hoc group of bondholders to significantly restructure the company’s outstanding debt”. That deal would “eliminate more than $300 million in debt from the balance sheet, provide significant working capital and convert the majority of the bondholder group debt into equity in a newly strengthened private company”.
In terms of the legalities, SFX said it had “today filed voluntary petitions for reorganisation under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The company’s international operating subsidiaries are not included and will not be impacted by the filing”.
Of course, despite all the woes of the last twelve months, SFX does control some significant EDM brands, so presumably the “ad hoc group of bondholders” reckon there is still a successful business to be made out of the company once it’s cut free from its debts. Though not with Sillerman at the helm. He will step down as CEO of the company as part of the restructuring, but stay on as Chairman, while a new chief is sought to come in and make things good.
Sillerman remained upbeat, though, as the bankruptcy announcement was made, saying of the deal FTI had put together that: “This expression of confidence from our lenders is testimonial to the vibrancy and potential of our business, and the dedication and professionalism of the over 600 people who make up SFX”.
He went on: “Of course this was not where we thought we’d be but with this restructuring we have the opportunity to achieve all that SFX can and will be. I’m looking forward to continuing to be part of the new SFX as Chairman. We will immediately commence a search for a new CEO to lead us as we continue to set the trend in the exploding culture that is electronic music”.
While the SFX parent company goes through the motions of Chapter 11, the firm was keen to stress that it’s business as usual in its various subsidiaries, what with festival season now looming on the horizon and plenty of dance labels still relying on good old Beatport to get their bleeps out to the masses. Subject to court approval, the aforementioned ad hoc group will provide $115 million in ‘debtor-in-possession’ financing to pay for “ongoing, normal course of business”, and obligations to suppliers and business partners.
To that end, Beatport – which at one point last year got all caught up in one of Sillerman’s buy-back bids – took to its blog yesterday to insist that “all Beatport users, customers, and partners should rest assured knowing that this action will have no impact on our ability to continue offering the most complete electronic music experience available. Around here, it’s business as usual”.
“That means the entire Beatport platform is fully operational without restriction”, the post went on. “The store remains open. The streaming service continues uninterrupted. New releases are being added every day. New videos are being scheduled and filmed. Payments to labels and suppliers are ongoing in their usual manner”.
“The beat goes on”, the post concludes. Though, at SFX HQ, the firm’s money-lenders-come-shareholders will be hoping a different beat will now sound, with a new approach that can turn the company’s portfolio of festivals and companies into something more like Sillerman’s previous ventures. We’ll see.
