What Comes Next for Annie Leibovitz?

As information continues to drip out about Annie Leibovitz's disastrous financial situation, her own personal D-Day is fast approaching. What happens on September 8, when her $24 million pawnshop loan comes due?

The Leibovitz meltdown has reached the point where even the British edition of Vogue, which is owned by her own employer Condé Nast, felt compelled to weigh in with a web item today, which strikes us as exceedingly back-stabby.

Barring the intervention of an angel, it seems highly likely that Leibovitz will file for bankruptcy before the Art Capital loan must be repaid next month. Here's the current state of play:

Leibovitz owes Art Capital $24 million. If she doesn't pay it back by September 8, she will be in default on the loan. But she may already be in default on the loan—according to a lawsuit Art Capital filed against Getty Images in April, Art Capital was at one point demanding a $1 million loan payment. It's unclear whether she made that payment or not, but if she didn't, that failure may have triggered a default. And in its suit against Leibovitz, Art Capital accuses her of failing to pay "hundreds of thousands of dollars" in fees associated with the loan—another failure that may have triggered default.

What happens if Leibovitz defaults? Well, for one thing, the 10% commission Art Capital gets from the sale of her homes and artwork under the terms of the loan gets a boost up to 25%, according to Bloomberg. Art Capital claims a "first priority security interest" in "every photographic image ever taken by Ms. Leibovitz" as well as he homes in Greenwich Village and Rhinebeck, N.Y. A "first priority security interest" means Art Capital gets in line ahead of other creditors if there is a bankruptcy. In order to know for sure what a default means, we'd have to see the loan agreement. But it's likely that, if Leibovitz hasn't made good by September 8, Art Capital would be entitled to take steps to sell off the assets to recoup its debt.

Except Art Capital appears to be already entitled to do that: Its deal with Leibovitz gives it the right to sell her homes and artwork before September 8:

What Comes Next for Annie Leibovitz?

Leibovitz's failure to cooperate in those sales is why Art Capital sued her in the first place.

So in terms of her relationship with Art Capital, September 8 doesn't change much: She may already be in default anyway, and Art Capital already has the right to sell everything off. What will probably change is that Leibovitz will file for bankruptcy—or be forced by one of her other creditors to do so—on or before September 8. According to Bloomberg, that is her best shot: It will put decisions on how to dispose of her assets in the hands of a judge, and it would halt any other creditor lawsuits against her and give her a chance to come to terms with her situation. Art Capital would still likely be able to force the sale and recoup some or all of its debt, but a judge might be convinced to reduce the amount, modify the interest rate, or alter the sales agreement under which Art Capital gets commission on the sale.

Is there another way out aside from bankruptcy? Well, Andrew Goldman reported this week in New York that Goldman Sachs owns a piece of the Art Capital loan, and Bloomberg reported yesterday (without giving New York credit for breaking the Goldman Sachs tidbit) that the bank is seeking to "terminate the current loan agreement with [Art Capital] so that [it] can work directly with Ms. Leibovitz" in order to "resolve her financing needs." Art Capital responded that it would be happy to receive a bid from Goldman for the loan, but Reuters' Felix Salmon is skeptical that Goldman will swoop in to save the day:

[M]y guess is that if Goldman wanted to buy Art Capital out of this deal, it would have to pay the best part of $30 million to do so. And then they would be owed $30 million by Annie Leibovitz, a woman whose decades-long history of repaying debts is uniformly atrocious. Somehow, with the best will in the world, I don't see this deal happening. And the one thing you can be sure of, when it comes to Leibovitz and Art Capital, is that there's no good will at all. Which means that Leibovitz is probably stuck with Art Capital for the foreseeable future, and Goldman Sachs is not going to be able to work out a white-knight deal.

So if Leibovitz doesn't declare bankruptcy and Art Capital manages to sell the portfolio, which it values at $50 million, it stands to get its $24 million back, plus $2.9 million in interest, plus a $12.5 million commission, assuming the sale occurs after Leibovitz defaults. That's roughly $40 million, leaving $10 million for Leibovitz. If she does declare bankruptcy, whatever Art Capital gets will be up to a judge, but it's likely that they would at least get back the principal.

So it actually appears to be in Art Capital's interest to sell the portfolio off before Leibovitz files for bankruptcy, and it appears to be entitled to do so. The trouble is, no one is going to buy it while all this legal wrangling is going on and without Leibovitz's consent. Bankruptcy, at the very least, would settle all the claims and free up the archive to be sold without any entanglements. It looks like that's where all this is heading, and it will probably get there by early next month.