The music catalog assets used as collateral to secure a $23.5 million loan to TVT Catalog Enterprises LLC and subsidiaries are being put up for auction by the lender, Prudential Securities Credit Corp
NEW YORK -- The music catalog assets used as collateral to secure a $23.5 million loan to TVT Catalog Enterprises LLC and subsidiaries are being put up for auction by the lender, Prudential Securities Credit Corp.
The assets include rights to Nine Inch Nails' "Pretty Hate Machine," "Mortal Kombat" soundtracks, the first seven volumes of "Television's Greatest Hits" and a Wax Trax boxed set; certain publishing rights in compositions from KMFDM, Gil Scott-Heron and Nine Inch Nails, among others; and trademarks, including the "Television's Greatest Hits" logo.
The public auction will take place in the New York offices of Proskauer Rose. The winning bidder must provide a deposit of 20% of the bid in cash or certified check, with the balance due within seven days.
The assets, served as collateral against a loan by UCC Lending, a predecessor of Newark, N.J.-based Prudential Securities. The loans were made in 1999, when the music industry was growing.
During the next three years, TVT paid more than $10 million toward the loan, but even as it was making those payments, revenue from the assets used as collateral was falling as overall industry sales began to slip. When asset revenue began to drop dramatically, TVT first put in its own funds to make up the shortfall in the cash collateral coverage ratio, and then sought to renegotiate its loan payments. Those negotiations proved unsuccessful, and in August 2002, Prudential began litigation, alleging default.
On Sept. 24, 2003, New York Supreme Court Judge Herman Cahn granted Prudential's motion for summary judgment and directed that certain collateral assets held by TVT be turned over to the lender.
That decision was upheld March 16, 2004, by the New York Appellate Division First Department, but other litigation continues. A related lawsuit brought by TVT alleges that Prudential violated the loan agreement by not appointing a "backup manager" from one of the majors before it terminated TVT's management of the collateral assets. TVT's suit also questions whether Prudential is entitled to the $1.1 million in cash collateral from TVT.
Some potential bidders speculate that this suit is the reason the catalog was not put up for auction sooner. In fact, the auction is seen by some as a formality in the foreclosure process, since the "lender reserves the right to bid on the collateral," according to a legal notice in this week's Billboard.
Around the time the appeal was upheld, TVT began telling retailers that it was no longer fulfilling orders on the relevant titles, according to retail sources.
These have been unavailable in the United States since, although "Pretty Hate Machine" is imported from licensees in other territories.
Sources say, with interest and legal costs, the lender values its loan at about $26.5 million and hopes to realize $16 million by the sale of the assets. But potential bidders say that price is unrealistic. TVT declined to comment but has positioned itself in court documents to retain matching rights to any bid, while Prudential is reserving the right to reject any and all bids.