LOS ANGELES (CN) — Before reality-TV powerhouse Core Media Group shut down erstwhile mega-hit “American Idol,” and filed for bankruptcy, its owners engaged in a complex scheme to strip Core’s assets and block its lenders from collecting on $360 million they were owed, according to the lenders’ trustee.
In a lawsuit filed Monday in LA County Superior Court, the litigation trust set up for Core creditors by the bankruptcy court accuses Apollo Global Management, working with 21st Century Fox and 19 related companies, of “intentionally interfering” with the lenders’ rights.
Apollo “engaged in a scheme to evade Core’s obligations to its lenders involving dozens of steps undertaken through nearly all of 2014,” the trust claims in the suit filed its trustee Peter Kravitz.
An Apollo spokesperson issued a statement saying, “The lawsuit is without merit and we intend to defend ourselves vigorously,” according to press reports. A representative for 21st Century Fox told Variety the company would not comment.
Core Media owns “American Idol” and the still-running “So You Think You Can Dance” reality competition shows, both created by former Core official Simon Fuller. Apollo, a private equity firm in Los Angeles whose properties include Caesars Entertainment and Norwegian Cruise Line, acquired Core for $510 million in June 2011 in a highly leveraged deal that included two loans totaling $360 million.
Both loans required Core to repay its lenders if control of the company changed. They also required it not to merge or combine with another business unless that business assumed the loans.
“The lenders imposed these restrictions on Apollo to ensure that Apollo had ‘skin in the game,’ and would not be able to effectively take value away from Core, or enjoy an exit event, in ways that would disrupt the lenders’ ability to be repaid by Core under the lending agreements,” the trust says in its lawsuit.
Apollo took over Core while “American Idol” was at its height. The following year, however, ratings began to decline, and the show concluded its final season this past June. Core filed for Chapter 11 bankruptcy protection in April.
As Core was beginning to fail, Apollo “engineered a series of complex transactions to exit Core and avoid liability for the substantial debt that it had caused Core to incur,” the trust claims. Those transactions centered on setting up a joint venture between a 21 Century Fox company called Shine USA Holdings and a competing reality-TV company Apollo had acquired called Endemol.
Although the deal left the new Endemol Shine Group largely in charge of Core and its assets, it was not made to repay the lenders as the financing contracts required, according to the lawsuit.
The goal was “to strip Core of its remaining cash, transfer Core’s corporate opportunities to its competitors, and ultimately leave Core to default on its obligations to its lenders,” the trust says in the lawsuit.
Apollo also had Core sell off some reliable assets, particularly management rights over intellectual property of Elvis Presley and Muhammed Ali, and move “new and potentially riskier business strategies.”
Quoting the Wall Street Journal and Fortune magazine, the trust claims Apollo has a reputation for “aggressive tactics” to protect its profits.
“Indeed, Apollo is notorious for engaging in aggressive schemes to buy time in order to siphon value from investments, with creditors being left less than whole,” the trust says.
The bankruptcy court in New York approved Core’s reorganization plan in late September. Under that plan, lenders in the first of the two financing agreements were paid “less than half the amount they were owed” and lenders in the second “received pennies on the dollar in the form of warrants,” according to the lawsuit.
“In all, the lenders lost hundreds of millions of dollars, less than two years after the ‘Apollo Way’ led to the formation of the joint venture,” the trust claims.
Its lawsuit seeks damages and punitive damages for intentional interference with contracts and inducing breach of the loan contracts.
The trust is represented by Michael B. Carlinsky and other lawyers from Quinn Emanuel Urquhart & Sullivan in New York, Los Angeles and San Francisco.