(Bloomberg) -- Sotheby’s is planning to use part of a new investment led by an Abu Dhabi sovereign wealth fund to pay back some of its existing lenders, a lifeline for the firm that has struggled with a heavy debt load and is facing a decline in sales.
The auction house, owned by billionaire Patrick Drahi, told lenders earlier this month that it will distribute about $700 million to existing creditors, according to people with knowledge of the matter, who requested anonymity discussing private information. That cash will come from a $1 billion investment from Drahi and the Abu Dhabi Developmental Holding Company PJSC, also known as ADQ.
The equity, which led ADQ to become a minority shareholder in Sotheby’s, is expected to arrive in the fourth quarter, the people said.
Sotheby’s has more than $1.8 billion in debt, including $544 million outstanding under its term loan, a revolving credit facility and several high-yield bonds, according to data compiled by Bloomberg. A separate entity, Sotheby’s Financial Services, also borrowed about $700 million in the asset-backed securities market, repackaging personal loans given to art collectors, Bloomberg reported.
The move allows Drahi to reduce Sotheby’s debt load significantly and stave off creditors. In June, before the investment was announced, S&P Global Ratings raised concerns about Sotheby’s ability to refinance “if it does not improve performance,” and downgraded its credit rating further into junk territory.
The planned repayment is a markedly different approach taken by Drahi with its creditors in Altice France, which has been moving assets out of lenders’ reach and asked some to take a 20% haircut to help the company reduce leverage.
Sotheby’s isn’t just grappling with its debt load, but is also seeing a drop in sales compared to last year, thanks to a turbulent auction market. The firm reported an about 21% drop in consolidated sales in this year’s second quarter — around $367 million — compared to the year prior, the people said.
Globally, the art market has also contracted, with sales falling 4% from 2022 to 2023, according to a joint report from Art Basel and UBS Group AG.
“Under Mr. Drahi’s ownership, Sotheby’s is significantly larger, more diversified and more profitable than ever before,” a Sotheby’s spokesperson said in an emailed statement. “During this period, we have invested hundreds of millions to enhance our facilities, technology and expand our offerings to clients.”
Sotheby’s was established in 1744 and provides financing to clients. All of its loans are secured by art and collectibles — including fine art, jewelry and collectible cars — and are usually in the form of term loans or short-term advances backed by a client’s consignments with Sotheby’s. Drahi bought the auction house in 2019, ending its three decades as a public company.
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