Minneapolis, Minnesota, US and Zurich, Switzerland (GenevaLunch) – Credit Suisse has been named as one of the largest creditors in the chapter 11 bankruptcy filing Friday of the the 15th largest newspaper in the US, the influential Minnesota-based Star & Tribune. Documents filed in court Friday show the Swiss international bank as a creditor of first lien, with $46 million owed to it, according to MinnPost, a community newspaper that is closely following the unfolding story.
The Swiss bank in early December 2008 said it was speeding up efforts to reduce its risk exposures; in a press release it said it expected risk-weighted assets on its books to fall from $270b at the end of 2007 to $170b by the end of 2008. Final 2008 figures have not yet been published. The Irish Times in December reported that Credit Suisse remains one of the world’s best capitalized banks.
The Minneapolis newspaper is widely referred to as the largest newspaper in the upper Midwest. It was purchased for $530 million in March 2007 by Avista Capital Partners, which under two corporate entities owns nearly 96% of the media company. According to Bloomberg, Avista paid $100 million in cash, which it wrote down in May 2008, and it borrowed the remaining $430m, with Credit Suisse and Royal Bank of Scotland acting as agents to a group of lenders.
The newspaper has been struggling under the burden of the heavy debt it incurred under Avista, although the Chapter 11 filing lists a decline in ad sales and failure to get union agreements to reduce costs as contributing to the newspaper’s failure.
Avista was set up in 2005 by former executives of DLJMB, a private equity investment arm of Credit Suisse First Boston (Ed. note: three years ago today Credit Suisse dropped “First Boston” from the name). Avista declined Friday night to comment on the nature of its current relationship with Credit Suisse.
According to MinnPost, “When the current owners. . . bought the newspaper for $530 million in March 2007, they pledged all of their equipment, inventory, certain property and other collateral to the first lieners.” The group of five first lieners is owed some $220 million, MinnPost reports, based on court records filed Friday.
Credit Suisse, which could not be reached after the story broke Friday night Swiss time, lists its relationship to Avista only under the heading of 2007 media transactions where it says it “Advised Minneapolis Star Tribune on $530 million sale to Avista Capital Partners.
Avista describes itself as a “leading private equity firm” based in New York and Houston. It explained its 2007 purchase of the Minneapolis media company as part of its “strategy is to make controlling or influential minority investments primarily in growth-oriented media” companies and other industries. The upbeat tone of the press release when the newspaper was purchased had given way by May 2008 to a more defensive posture: John Fine, media observer at Business Week, seemed far from convinced when Avista said that the paper was paying its bills and had no intention of filing for bankruptcy.
MinnPost’s owner, Joel Kramer, is the former editor of the Star & Tribune. MinnPost, like GenevaLunch, is a non-profit community newspaper, which Kramer recently described to the Financial Times (FT) as complementary to, rather than in competition with, the Strib, as the newspaper is popularly known. Kramer was discussing the decline of major media in the US with John Gapper, the FT’s chief business commentator, who is based in the US. The New York Times has been losing money and the Chicago Tribune and Los Angeles Times recently filed for Chapter 11 protection.
Credit Suisse, already burdened like other banks with too many toxic assets, created an unusual fund of these assets in December 2008, the FT reported: it offered shares in the fund to employees who could end up with the equivalent of a bonus if they can help turn around the assets, or who could end up with worthless paper, like so many other people, if they cannot. Whether or not the Strib, as it reorganizes under Chapter 11 laws in the US, ends up as part of the fund, can only be a guess at this point. And how much bankers, who have their own worries at the moment, care to get involved in turning around newspapers is yet another of the question marks hanging over a changing media landscape.