MUMBAI: Popular EDM festivals around the world have gained tremendous following with the likes of Electric Zoo and Tommorowland. In fact, according to an article by Billboard dated 22 May, 2015 the EDM industry grew by 12 per cent YoY to $6.9 billion. Behind this backdrop, US based SFX Entertainment, which owns Electric Zoo, Tommorowland and Rock in Rio, has been in the news for its troubled financial situation. So much so, that the festival promoter has filed for Chapter 11 bankruptcy.
The bankruptcy filing highlights the stressed SFX’s financial situation. Revenues for the three months ended 30 September, 2015 declined by $10.3 million, or 7%, year over year to $133.2 million. Excluding foreign currency impact, revenue in the three months ended 30 September, 2015 would have declined by $0.5 million, or less than 1%, year over year. Revenue for the period was also adversely impacted by approximately $4.0 million of lost revenue due to the cancellation and/or partial cancellation of several events during the quarter, which is expected to be partially replaced by insurance recoveries during later periods, as well as a reduction in the volume of digital music downloads.
Filling for Chapter 11 bankruptcy protection allows companies to reorganize their debt while they keep their businesses operating. As part of its agreement with bondholders, SFX will eliminate more than $300 million of its $490 million of debt in part from its balance sheets and be turned into a private company. SFX stresses that its operations will not be impacted by the bankruptcy proceedings.
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“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,” CEO and Chairman Robert Sillerman said in a statement. None of the company’s foreign subsidiaries are included in the bankruptcy. Beatport, SFX’s download and streaming service, released a statement its operations and payments to suppliers “are going on in their usual manner.”
“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. 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.” Sillerman added.
SFX’s bankruptcy filing comes weeks after the company skipped a $3 million interest payment to bondholders, who quickly declared the company in default on the $5.8 million balance of the bond. The company’s $220 million in senior bond debt and $30 million revolving credit facility each contained cross-default provisions, but neither investor group declared a default at that time. In the days that followed, SFX announced $20 million in fresh financing that allowed the company to continue negotiating with debtholders.
Earlier this year, SFX tried to raise liquidity with a go-private transaction that ultimately failed. Led by Sillerman, the deal initially offered $4.75-a-share and later $5.25-a-share, but it was challenged in the Delaware Court of Chancery and was scrapped in August
Hopefully SFX would see through this process quickly provided the plan is accepted by a bankruptcy court in Delaware, where it was filed and emerge as a stronger company that it always intended to be. Signs point to the strengthening potential of the company as Tomorrowland sales broke numerous records last week. The company also promotes other EDM events, including Mysteryland and Life in Color. It also operates Beatport, an online music store for electronic dance songs.
