FEBRUARY 18, 2002

Kirch lenders extend credit, but $11bn debt revealed

THE KIRCH GROUP, who control the commercial rights to Formula One, may be saved temporarily from the brink of bankruptcy by its German creditors.

A group of German banks, which collectively hold $2.7bn worth of Kirch loans, have agreed to extend their lines of credit to the German media giant and will join HVB in a $960m offer for Kirch's 40% stake in publishing company Axel Springer.

The banks to join HVB, Germany's second largest bank, are Bayerische Landesbank, Commerzbank, and Dresdner bank. DZ-Bank has reportedly not decided on whether or not to join in the offer.

The provisional deal may take time, however, due to the large number of banks involved, and complications involving Axel Springer. The group's stake in Springer serves as collateral for funds extended by JP Morgan Chase, Lehman Brothers, and Bayerische Landesbank to finance the acquisition of SLEC, the trust that owns the commercial rights to Formula One. Kirch could presumably offer up other holding as replacement, however. Another hurdle is that Kirch needs approval from Axel Springer to sell it's stake.

The deal would not allow Kirch to repay all it's outstanding debts, but would provide some breathing room. Kirch would be able to pay off a $87m debt to Bundesliga, the German soccer league, which was due on February 15, as well as a put option exercised by Springer at the end of January for $668m.

Kirch is trying to unload some of its other non-core investments to prevent a takeover or bankruptcy. SLEC is definitely a non-core investment for the group, but is currently worth considerably less than what they paid for it. There have been rumors that Bernie Ecclestone was willing to offer $700m to regain the F1 rights, but Kirch has said it would not take such a large loss on the investment.

Kirch may not be at liberty to bargain, however. It was thought that Kirch's debts totaled about $7bn, but the Wall Street Journal reported Monday that an auditor for the Kirch Group found debts totaling over $11bn, revealing that they are in much more dire financial trouble than previously thought.