APRIL 11, 2002

Kirch collapse under investigation

THE financial dealings of the Kirch group are now being investigated by the German national bank regulator BaKred and it is likely that this could lead to a criminal investigation by the Munich state prosecution service. That body has only recently finished its investigation into the last owner of the commercial rights to Formula 1 racing EM.TV and there are expected to be criminal charges against former EM.TV owners Thomas and Florian Haffa.

The investigation is expected to center on the real value of collateral offered to banks in exchange for new loans. The Kirch empire raised huge loans by offering banks security in other Kirch companies. The complicated structure of these agreements is only now being unraveled by the court-appointed administrator.

It is understood that loans related to the purchase of Kirch's stake in SLEC, the Formula One group holding company, from JP Morgan ($300m), Lehman Brothers ($300m) and the Bayerishe Landesbank ($880m) were all secured against Kirch's stake in the Axel Springer publishing house. The Lehman Brothers loan is also believed to be secured by the shares in SLEC. It will be remembered that at the time Kirch paid EM.TV $586m and the Ecclestone Family received $987.5m.

What is not clear at the moment is which of the many Kirch companies actually owns the F1 shares with the latest indication being that they actually belong to a subsidiary called Kirchbeteiligung GmbH. This will become irrelevant if the Kirch holding company Taurus Holding is declared insolvent, which looks likely to happen in the course of the next few days.