Kirch Gets the Banks on Its Side

HVB Group, Germany's second-largest bank, on Thursday took the unusual step of making a public pronouncement on the level of its loan exposure to an individual corporate client – the Kirch Group.

HVB (also known as HypoVereinsbank) said the loans it had issued to the cash-strapped media giant totaled less than 500 million euros, shared approximately 50:50 between the Kirch Media unit (which brings together the core businesses of television and trade in film and sports rights) and its pay-TV channel, Premiere.

HVB stressed that it had not participated in the financing of Kirch's acquisition of the marketing rights for Formula One motor racing. HVB said the credit lines had been in existence for some years. It put its total exposure to the media sector at some 1.8 billion euros.

As collateral for HVB's credits, Kirch has used primarily film rights. For this purpose, the rights have been valued at 35% of what they would be expected to fetch on the market. HVB's announcement, which it said had been made with Kirch's agreement, was clearly a response to market rumors, which had pushed down its share price on Wednesday.

According to the rumors, the company's exposure to Kirch was as high as 1 billion euros. Over the weekend, there were a series of reports of an imminent hostile takeover bid for Kirch by Rupert Murdoch's News Corporation.

But it's clear that Kirch has used the rumors in order to get the banks to make explicit statements of support. HVB, for example, made it clear that it plans to maintain its credit lines to Kirch. HVB's statement follows the news that Dresdner Bank AG has decided to extend a loan of 450 million euros to Kirch.

The bank had said at the start of the week that it would be calling in the loan. Banking insiders said Dresdner had probably been able to secure more favorable terms for the loan. The bank's change of heart may also have been prompted in part by the news that Kirch was able on Thursday to present another sports licensing agreement – the sale of the broadcasting rights for the 2002 soccer World Cup to Italian group RA1 for around 150 million euros.

Meanwhile, Bayerische Landesbank, one of Kirch's principal banks, also issued a statement. "BayernLB continues to make its existing loan facilities, for which the normal level of security has been provided, available to the Kirch Group," said a spokesman.

BayernLB's exposure to Kirch totals 1.5 billion euros, and its total exposure to the media sector stands at 2 billion euros. The bank, in which the state of Bavaria controls a 50% stake, helped to finance Kirch's investment in Formula 1 earlier this year through a loan of 800 million euros, a significant part of which was later securitized and placed on the bond markets.

As collateral for its BayernLB loan Kirch has used its 40% stake in publishing group Axel Springer Verlag. This stake has also been used as collateral for a loan of over 500 million euros issued by Deutsche Bank, which – like Dresdner, HVB and BayernLB – plans to stand by Kirch.

Other creditors, albeit with lower levels of exposure, include Commerzbank AG and internationally active institutions such as Britain's HSBC, and CSFB and Chase Manhattan of the United States.