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http://www.nytimes.com/2004/02/12/ar...ic/12JACK.html

Quote:

Michael Jackson Faces Cash Crisis
By SHARON WAXMAN

Published: February 12, 2004

LOS ANGELES, Feb. 11 — Michael Jackson is near insolvency as he continues to pile up debt, sapping his last credit reserves, several close financial advisers say.

Mr. Jackson faces an immediate cash crisis with a $70 million loan from the Bank of America that is due on Tuesday and has no money to repay it, the advisers said. But Al Malnik, a Miami entrepreneur who is helping repair Mr. Jackson's finances, said that he was trying to have the loan extended.

Mr. Malnik said he met with Mr. Jackson's business managers this week to discuss the loan. Together, he said, they were "working toward a positive resolution of Michael's financial affairs and business affairs that will result in a reorganization of his valuable assets."

The child molestation charges against Mr. Jackson and allegations that the Nation of Islam, the black separatist group, is involved in his affairs have scared banks off and hurt his ability to make more money, the Jackson advisers said. Banks were particularly reluctant to extend him credit, they said, because of reports that a senior member of the Nation of Islam, Leonard Muhammad, was controlling Mr. Jackson's finances. Mr. Muhammad, who has a series of failed businesses in his past, hung up the telephone on a reporter who called for comment.

Mr. Malnik is a multimillionaire who in 1993 was alleged to have had ties to the mob, an accusation he denied. He is the owner of a national chain of loan stores, Title Loans of America, which consumer advocates have criticized as lending at exorbitant rates.

At least two groups of investors who were prepared to make business deals with Mr. Jackson last year have backed away from them because of the criminal charges, people involved in the deals say. At the same time new sources of income for Mr. Jackson in the form of records or concert tours seem to be out of the question until the molestation charges are resolved. Mr. Jackson is accused of nine felony counts related to acts involving a 13-year-old boy. His lawyers are to appear in court on Friday to set a date for a preliminary hearing.

Meanwhile creditors and vendors, like law firms, Internet providers and marketing companies, are being asked to discount their invoices even as Mr. Jackson has rented a $70,000-a-month home in Beverly Hills, Calif., while his 2,700-acre ranch, Neverland, stands empty, two vendors said.

One adviser said that Mr. Jackson had about a half-dozen sources of income, including royalties from BMI and other music companies. But his most valuable asset by far is the Beatles catalog of about 250 songs, which Mr. Jackson and Sony Music Entertainment jointly own as part of the ATV Music Publishing catalog, with an estimated value of $800 million to $900 million. The catalog of Mr. Jackson's own music, including hits like "Billie Jean" and "Beat It," has an estimated value of $75 million to $90 million.

Mr. Malnik said that he was helping Mr. Jackson out of friendship. The loan is guaranteed by the Jackson music catalog, which would revert to the Bank of America if Mr. Jackson defaulted, said several of his advisers. They explained his financial affairs in detail on condition of anonymity, some saying that they were unhappy about the Nation of Islam's involvement, others saying that they wanted to counter inaccurate reports about Mr. Jackson's finances.

A spokeswoman for the Bank of America declined to comment.

Mr. Malnik and Charles Koppelman, a business manager for Mr. Jackson, hope to extend the loan's due date to December 2005, now with the backing of a New York-based hedge fund, the advisers said. If Mr. Jackson were to default in 2005, the hedge fund would take over the Jackson-music catalog.

State financial filings in California show that Mr. Jackson owes millions of dollars to the Bank of America. In addition to the $70 million loan, there is also a $200 million loan, guaranteed by the ATV music catalog that he owns with Sony. But the Jackson advisers said that asset was also leveraged for an additional $250 million to buy other music libraries by other stars.

If the catalog were sold to pay the Bank of America debt, there would be nothing left for Mr. Jackson once the proceeds were divided with Sony and the taxes paid, the advisers said.

Mr. Jackson does not appear worried. Several close associates said he was spending about $2 million a month, often on shopping sprees, like one for cars on a recent weekend. He is also paying for a contingent of Nation of Islam members, who have become part of his inner circle, associates said.

Under the Bank of America loan, Mr. Jackson is limited to spending $1.5 million a month, his advisers said. "There's a few million dollars left to be drawn down, and after that there is a reserve to pay the interest," said one adviser, who has been renegotiating the credit line.

It is unclear what Mr. Jackson would do if that money was used up. One adviser said that Mr. Jackson did not seem to realize that his music no longer pulled in the millions in royalties that it once did, because of depressed sales in the music industry.

Even now, half the money earned by Mr. Jackson goes to the bank under the loan agreement. "All of the funds coming into the bank as income from projects and music royalties, the bank retains 50 percent of that to retain a credit line," one adviser said. "He can use the other 50 percent."

As part of the terms of the two loans, Mr. Malnik must act as a trustee over Mr. Jackson's spending. Mr. Malnik became involved with Mr. Jackson a year ago when he faced bankruptcy from creditors, including hotel chains and security companies.

Mr. Malnik said that the bank was about to place a lien on Neverland and other assets last year when he stepped in. Mr. Malnik was linked to organized-crime figures in 1993 by a New Jersey gaming commission. "The evidence establishes that Mr. Malnik associated with persons engaged in organized criminal activities," the commission said in a report, "and that he himself participated in transactions that were clearly illegitimate and illegal."

Some close to Mr. Jackson say that Mr. Malnik wants to legitimize his image by helping Mr. Jackson.

Mr. Muhammad, a Nation of Islam leader, has become Mr. Jackson's main adviser.

Mr. Jackson has also hired a spokeswoman, Raymone Baine, who said that she was shocked that Mr. Jackson's advisers had spoken to a reporter: "They should not be speaking to the press; that's outrageous."

Before the child molestation charges, several financial rescue plans had been in the works for Mr. Jackson through a consortium of investors led by Mr. Malnik. But Mr. Jackson's advisers said that any investments that might repair his financial condition are unlikely to progress as long as the felony charges hang over him. Said one adviser who had been involved in the pending deals, "It is exceptionally more difficult now."