SFXE Teeters On Bankruptcy, Explores Debt Restructuring

[UPDATED] With SFXE stock trading down 95% for the year and saddled with $300 million in debt, the EDM conglom has very few options. But even as it teeters towards bankruptcy, bombastic CEO Robert Sillerman and his board say they are 'examining' asset sales and debt restructuring.

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By Dave Brooks from live music trade Amplify.

SFX'S MARKET CAP IS DWARFED BY DEBT

The incredible shrinking of SFX's share price has skyrocketed the company's debt ratio to nearly 10 times its market cap. With its stock trading near $.32 per share (down 95% from a 12-month high around $4.94 in June), the company's debt of $300 million is causing serious cash flow problems for beleaguered CEO and Chairman Robert Sillerman.

SFX is now exploring a debt restructuring and has brought on investment bank Moelis & Co to help the company from drowning to its creditors. Reuters broke the story, reporting that "no decision about a particular course of action has been taken."

"It is correct that the company hired Moelis to examine broadly its position. That principally includes sales of non-strategic assets as well as examining the capital structure of the company," a spokesman for Sillerman told Reuters.

Will this latest intervention help SFX steady the course? Not likely. SFX and Sillerman have a serious credibility problem. And the Moelis deal is the latest distraction in a string of broken promises by Sillerman that have destroyed the first publicly traded company dedicated to Electronic Dance Music.

SILLERMAN'S BROKEN PROMISES ARE TOO MANY TO COUNT

The only consistent thing about Sillerman's recent stream of statements about the health of SFX have been their untruthfulness. His offer to take the company private at $5.25 per share (later reneged), his claim to be financing the company with an emergency $30-million bridge loan that never fully materialized and his failure to spin off any of SFX's assets have decimated his credibility.

Meanwhile, the company continues to bleed money — SFX Entertainment lost $52 million in Q3 and $144 million in 2015. Sillerman has an offer on the table to take the company private at $3.25 per share, but with shares of the company selling at one-tenth of the price, it's clear that few on Wall Street are taking Sillerman's offer seriously.

In order for SFX to survive, the company faces the impossible task of finding money to finance Sillerman's go-private bid and provide it an ongoing credit line to finance its cash-devouring festivals. And while the company does sit on some valuable assets, potential buyers should only expect their price to drop further.

There's only one real option left for SFX, and it's inevitability might be a good thing for the concert industry. That option is bankruptcy.

WHAT WILL AN SFX BANKRUPTCY WILL LOOK LIKE?

SFX is teetering on the brink of insolvency, kept afloat by a lull in the festival season that will heat up again in the early months of 2016. I predict that the company will declare bankruptcy sometime in the first or second quarter, a move that could seriously jeopardize Rock in Rio in Las Vegas and Mysteryland in Bethel Woods, New York.

A bankruptcy would be devastating for shareholders, who will likely lose their entire investment as debtors swallow up the company. With the company's assets now in control of a bankruptcy court and their debt restructured, the liquidation of SFX and the potential de-consolidation of Electronic Dance Music could finally shake a space that's been crippled by Sillerman.

Yes, it's possible that a company like Live Nation or AEG could buy up all of SFX's festival and EDM assets, but what's more likely is that a number of buyers will step up and buy some of the assets individually. Indie promoters could buy their companies back, startups could use a festival purchase to get a foothold in the music industry and private equity groups could try their hand at the event business. And SFX doesn't just own festivals — it's portfolio includes download site Beatport and ticketing firm Flavorus.

There's a lot of value within SFX and once those properties break free of Sillerman's gross mismanagement, there's a great opportunity to flourish and grow under new ownership. SFX cannot be saved, but its dissolution has the potential to reinvigorate the market and bring some new voices into the industry.