KirchMedia declared insolvent as rescue package fails

KirchMedia has been declared insolvent after a last-minute rescue package by investors failed to materialise over the weekend.

The failure of KirchMedia to survive its creditors will, however, not threaten owner Leo Kirch's most lucrative assets – the rights to broadcast the World Cup finals and the Formula One racing championships. Indeed, the World Cup rights have been divested to an independent subsidiary based in Switzerland – far away from German courts.

Backers of the media giant's owner, Leo Kirch, have said that the bankruptcy of the company does not necessarily mean that the rapid sale of assets elsewhere could not win KirchMedia a reprieve from administrators. However, bankers now expect a domino effect within the Kirch empire as they believe Taurus, the parent holding company of Kirch's ventures, will also be declared insolvent.

The failure of debt-laden KirchMedia could have a widespread effect in the banking markets as up to eight major German banks could be hit by the writing off substantial portions of Kirch's mammoth €6.5 billion debt mountain. Bayerische Landesbank are the group's biggest creditor to the tune of €1.9 billion, Deutsche Bank are owed €700 million and both DVB and Dresdner Bank are owed €460 million. However, the banks moved quickly to dispel any fears, stating that there would be sufficient financial collateral to cover any losses.

The severe financial straits that British Nationwide League clubs are facing in the wake of the ITV Digital collapse could be mirrored in the Bundesliga as failed pay-TV venture Premiere – haemorrhaging around $1 million a day – winds down. The Bundesliga were to be paid €360 million this year and €460 million for the final year of the broadcast contract.

The fight over Kirch assets will be intense as Rupert Murdoch's BSkyB, which has a 22 per cent stake of Kirch PayTV, and Italian Prime Minister Silvio Berlusconi's rival interests pick over what remains.

Kirch's Premiere Pay-TV is where most of the damage to the corporation has occurred. For 2001, the company posted a core loss of €864.9 million with debts of €962 million.

(GMcG)