SFX Debt Downgraded by Moody's and S&P, Exec Pay Altered

Financially strapped EDM promoter SFX amended the pay of two of its top executives last week in a shift towards guaranteed compensation rather than performance-based stock options. The news comes as more investor services, Standard & Poor's and Moody’s, have downgraded SFX’s ratings.

In a filing with the SEC, the company said Beatport president and CEO Greg Consiglio has agreed to an annual salary of $300,000 and a reduction in his target bonus from $400,000 to $150,000. His previous base salary was $1. Severance pay terms were also changed to six months salary and 50 percent of his bonus, down from the prior year’s entire bonus.

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Kevin Arrix, the evp of global brand partnerships, will also see his annual salary set at $300,000, up from a $1. The agreement eliminates his performance-based target bonus of $500,000 along with the equity bonus of 150,000 shares of common stock from his original employment agreement. Any bonus, the agreement notes, will be "determined in the sole discretion of the company." Arrix’s severance package mirrors Consiglio’s.

In addition, both execs had originally been granted stock options that would have given them the ability to purchase 250,000 (Consiglio) and 75,000 (Arrix) shares of common stock at $3.76. With shares now under $1 (95 cents at close on Thursday), those options are currently well underwater.

The new terms increase guaranteed pay for the execs, who weren’t exactly going to receive much from their performance-based bonuses and stock options.

On Thursday, S&P’s Ratings Services decided to lower SFX’s corporate credit rating to CCC from B-, stressing that the outlook is negative. "SFX's liquidity and cash flow metrics remain the primary risk factors for the current rating, in our view," said Standard & Poor's credit analyst Naveen Sarma. "We believe the company will need additional cash or borrowing availability in order to meet its operating and working capital needs as well as to fund earnout payments."

As for the Moody's downgrade, SFX's corporate family rating on Wednesday was downgraded two notches (specific debt was downgraded separately) because Moody's believes SFX has "weak liquidity" and "will require external funding" to fund operations "and may be unable to retain it."

Those downgrades follow a warning last week from a Stifel Nicolaus analyst that brought the stock to “sell” status, lowering its target price to $1 from $2. The adjustment came after SFX's announcement that chairman and CEO Robert Sillerman failed to meet a deadline to secure financing for his proposed takeover of the company.

Glenn Peoples contributed reporting.