Hollinger credit rating at risk

Lord Black's control of Hollinger International, the company which owns the Telegraph titles, is under immediate threat after the severing of a financial lifeline feeding cash into his main holding company.

Following the Tory peer's sudden resignation as chief executive of Hollinger International, the company's Toronto-based parent, Hollinger Inc, warned late on Monday that it might have to default on a $120m (£71m) bond issue after news that controversial payments to the company would cease within seven months.

Pressure on the publishing tycoon mounted yesterday when the Standard & Poor's credit agency warned that it might again cut Hollinger's debt ratings across the board, a move that would further restrict the group's ability to raise fresh finance.

The bond holds the key to Lord Black's ownership of the Daily Telegraph, Chicago Sun-Times and Jerusalem Post, since holders of the debt have been pledged almost all of Hollinger Inc's 30% equity stake in Hollinger International as collateral. The shares carry voting rights worth 73% of Hollinger International, giving Lord Black tight control of the company.

If Hollinger fails to meet interest payments on the bond, the 30% shareholding will be sold off to pay bondholders, ending the peer's ownership of the underlying newspaper group.

Hollinger can only pay interest on the bond if it receives a $15m contribution from Ravelston, a private company controlled by Lord Black. That payment is in turn funded by Hollinger International, which is due to pay Ravelston up to $24m in management fees this year.

The company informed Ravelston on Monday that the management agreement would be terminated on June 1. Hollinger Inc said in a filing to the securities and exchange commission that the move had dire implications for its debt payment.

Hollinger added that unless it received cash from a restructuring of Hollinger International, which could include the disposal of newspapers, it might default on its debts.

It also warned that repaying Hollinger International $16.6m in unauthorised non-compete payments, which were revealed last week and led to Lord Black's resignation on Monday, could have a "material adverse impact on Hollinger".

S&P analyst Don Povilaitis said: "Further exacerbating matters on Hollinger is contention regarding the authorisation, amount, and purpose of non-compete payments associated with the sale of Hollinger International newspapers received by Hollinger, which it will likely have to repay in full to Hollinger International."

Dissident Hollinger International shareholders yesterday reiterated demands for full reimbursement of the $90m in non-compete payments that have been handed to Lord Black and several colleagues since 1999.

Laura Jereski, analyst at New York-based investment firm Tweedy Browne, said demands for repayment of all the fees, made in an SEC filing in May, had not been met.

"All we wanted was to get all of the non-competes back into the company. None of these things have happened. The payments discussed yesterday were other monies that left the company but do not address the demands we made on the board last spring. We have not had any satisfaction on that," she said.