Goldman Sachs Group Inc.. hasn't been chalking up points for finesse these days. But the handling of its significant debt interest in Inner City Broadcasting Corp. shows that, figuratively and literally, it still has Magic.
That's Magic as in Earvin "Magic" Johnson, the basketball legend who's now chairman and CEO of Magic Johnson Enterprises. Goldman has agreed to sell the delinquent debt it holds in ICBC -- the urban radio empire built by recently deceased and former Manhattan Borough President Percy Sutton -- to MJE in a move that defuses a situation so politically explosive it once commanded the attention not only of Goldman chairman and CEO Lloyd Blankfein but of President Obama.
Flashback to the Troubled Asset Relief Program proposed in September 2008 by then-Treasury Secretary Henry Paulson. Coincident with TARP, which after congressional passage a month later bailed out the likes of Goldman and GE Capital Corp., African-American-owned ICBC was missing interest payments on its debt. The radio broadcaster, a 17-station group whose flagship is New York's WBLS, had been suffering what Pierre "Pepe" Sutton termed "economic body blow after body blow."
Pepe, the son of Percy, became ICBC's chairman and CEO in 1991. And in a New York Daily News column on Aug. 4, 2009, under the headline "Obama, throw a lifeline to black and Hispanic radio," he cited three reasons why minority media were headed for extinction: Defaults had turned creditors into owners of all sorts of media; the switch to Portable People Meters had reduced ratings, as presented to advertisers, of many minority stations; and troubled advertising categories, particularly automobiles, had cut back on minority buys.
"No new laws would have to be passed," Sutton pleaded in his op-ed. "The Treasury Department can easily tap into funds already appropriated under [TARP], which has helped to restore credit flows to the financial and domestic automobile supplier industries."
Sutton didn't leave his opining to the Daily News, however. He also enlisted the Congressional Black Caucus to call off Goldman and GE Capital in their quest to get ICBC to repay the $230 million owed to them.
The CBC, in turn, threatened to undermine a reform plan that the Obama administration considered critical. As ranking CBC member Rep. Maxine Waters, D-Calif., explained to The New York Times in December 2009, "While we appreciate the need for the expansion of regulatory authority, we can no longer afford for our public policy to be defined by the world view of Wall Street."
Pitting minority media against the financial institutions to which they were indebted proved an effective ploy. Lead ICBC creditor Goldman admitted to renewing negotiations with its delinquent debtor after the financial reform showdown, whereas the White House expressed sympathy about struggling media companies championed by both the CBC and ICBC. "And that's why we've engaged in a positive way to make progress on these issues," it concluded in a brief statement.
Privately, however, insiders acknowledge the White House had been played as deftly as Goldman and GE Capital. "All Obama could say is, 'Somebody get this off my desk ... make it go away,' " a source says of the political football that ICBC tossed the president's way. Another source not given to mincing words adds: "ICBC played the race card at a time other companies were being bailed out by the government. Now how do you trump that?"
Answer: with Magic. In fact, Johnson's MJE already had a working relationship with Ron Burkle's Yucaipa Cos. LLC that could quell any ICBC complaints about minority media's going away. In January they bought a major ownership stake in Vibe Holdings LLC -- the parent company of Vibe magazine, Uptown Magazine and the "Soul Train" television show and library -- from InterMedia Partners LP. And in April the same MJE-Yucaipa team acquired three Phoenix radio stations -- one alternative, one hip-hop and one Spanish pop -- from Atmor Properties Inc.
Now, on buying the no-longer-interest-paying ICBC debt held by Goldman, MJE and Yucaipa are setting up a change of control that will play to the public as well as pay Goldman. Sources say Fortress Investment Group LLC has agreed to buy GE Capital's smaller slice of ICBC debt. The result will be ICBC's effective acquisition by MJE and another extension of its magnanimous mission: "a catalyst for driving unparalleled business results for our partners and fostering community/economic empowerment by making available high-quality entertainment, products and services that answer the demands of ethnically diverse urban communities."
What's more, regardless of ethnic orientation or political affiliation, no one will be in a position to complain with any degree of legitimacy about Goldman's resolving this delicate state of affairs. Some magic.