Apollo sued by American Idol lenders for ‘asset stripping’

Apollo Asset Management is being sued by lenders to its now-defunct portfolio company Core Media for allegedly stripping its assets, and avoiding liability for the debt the media company incurred. 

The lawsuit, filed at the Los Angeles Supreme Court on Monday, is led by pre-bankruptcy financers including Tennenbaum Capital Partners, Bayside Capital Inc and Hudson Bay Capital. 

It says Apollo “orchestrated a complex series of moves that resulted in Core’s lenders not being paid in full, or even having their loan liabilities assumed.”

21st Century Fox and Endemol Shine Group, which became involved in the media company following a 2014 joint venture agreement, were also named in the complaint. 

Apollo acquired Core Media, the owner of reality TV series including American Idol and So You Think You Can Dance, in 2011 for $512 million. But it ran into financial difficulties as ratings for the singing competition declined, and declared bankruptcy in April 2016. 

Joint venture agreement

The lawsuit claims as a result of declining ratings Apollo and 21st Century Fox set up a joint venture agreement that allowed it to strip Core of its remaining cash, and “transfer its corporate opportunities to competitors.”

This joint venture agreement resulted in the merger of Apollo’s Endemol and Core Media with Fox’s Shine Group. 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.

Further, Apollo had Core sell off some reliable assets, particularly management rights over intellectual property of Elvis Presley and Muhammed Ali, and move to “new and potentially riskier business strategies,” it said.

The lenders also contend the joint venture resulted in Apollo ceding majority control over Core – something that was prohibited under the bridge loan agreement the private equity firm had originally used to fund its acquisition of the company in 2011. 

Precedent

Quoting the Wall Street Journal and Fortune Magazine, the complaint claims Apollo has a reputation for “aggressive tactics” to protect its profits. 

“The lawsuit is without merit, and we intend to defend ourselves vigorously,” a spokesman for Apollo said.