Rating agency sounds alarm on Hollinger's liquidity problems

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Moody's sounded the alarm last night on the media group Hollinger, citing liquidity problems and "questionable" corporate governance practices.

The credit rating agency put on review for possible downgrade all ratings for Hollinger Inc, the company used by the media baron Lord Black of Crossharbour to control his newspaper empire. The news deepened the sense of crisis at the media business.

The agency said: "The rating action reflects Moody's heightened concern regarding the ability of Hollinger Inc to adequately service its debt and preferred stock obligations in the near term."

Moody's is also reviewing the ratings it has given to Hollinger International, the related company that publishes The Daily Telegraph, The Sunday Telegraph, and The Spectator magazine in this country. The group also publishes the Chicago Sun-Times and the Jerusalem Post. The debt of both Hollinger companies is already rated at junk level.

Hollinger Inc holds more than 70 per cent of the voting rights in Hollinger International. Lord Black is chairman and chief executive of both companies.

Moody's cited "the liquidity problems of Hollinger Inc [and] the questionable corporate governance practices" of both Hollinger Inc and Hollinger International". Hollinger Inc has $120m of bond debt. However, that debt is serviced by "management fees" controversially paid by Hollinger International to a private company called Ravelston, which then passes money to Hollinger Inc to meet interest payments.

John Page, a vice president at Moody's in New York, said: "Our number one concern is about the sustainability of the management fees."

A break in the crucial chain linking Lord Black's companies has become a possibility after protests by independent shareholders earlier this year. Lord Black has appointed a committee of non-executive directors to investigate corporate governance issues at the company, including the fees. Independent shareholders want these payments cut drastically.

Moody's said it was concerned the findings of this investigation "might undermine the structural integrity of the $120m note issue", which is currently rated at six notches below investment rate.

Lord Black has dismissed any suggestion that there is a financial crisis in his media empire or that he may be forced to sell assets. However, he is in talks with an unnamed outside investor about making a cash injection into the company.