SPOTIFY SEEKS TO RENEGOTIATE DEBT (UPDATE)

Spotify will begin negotiating with creditors to reduce the burden of its $1 billion in debt after it begins to trade on the New York Stock Exchange later this year, The Times of London reported Monday.

According to the terms of the March 2016 agreement with creditors TPG, Dragoneer Investment Group and clients of Goldman Sachs, Spotify would pay 5% annual interest on the debt, which would then increase by 1 percentage point every six months until the IPO, or until the interest hits 10%. But the streamery’s plan to directly list its shares on the NYSE doesn’t meet the terms of that deal, The Times reported.

A direct listing involves selling stock without a large underwriting bank, thus saving Spotify a boatload of fees. If this unusual strategy gets the green light from the SEC, the House of Ek will probably convert the bond into shares at the start of trading, when some $13 billion in shares are slated to go public; a ruling is expected by 6/29. The NYSE is reportedly considering a rules change that would make the direct-listing process simpler. But sources said Spotify could instead elect to shoulder the higher interest rate and pay off the debt when the bond matures.

Meanwhile, Spotify has settled a class-action suit over mechanical royalties with the creation of a $43.4m fund for compensating the artists and labels whose music it played without paying mechanical royalties. The suit stemmed from separate actions filed by David Lowery and Melissa Ferrick.

Mechanical royalties have been a legal thorn for Spotify for several years, as RAIN pointed out in a 5/30 post. The company was sued by Victory Records and its publishing arm in 2015.