BERLIN — Media mogul Leo Kirch's core television and rights-trading businesses filed for protection from creditors Monday, heralding the biggest bankruptcy in post-World War II Germany and rocking national institutions from the chancellery to the Bundesliga soccer league.
With a legal declaration of insolvency for KirchMedia and KirchPayTV, the main holdings of Kirch Group, the 75-year-old founder bowed out of his namesake empire after more than 40 years as one of this country's most spectacular rags-to-riches stories.
Kirch's media holdings collapsed under a load of debt, about $1.2 billion of the $5.7 billion owed from all of his enterprises. The debt includes $352 million owed to Hollywood studios for film rights.
A Bavarian farm boy whose first rights deal was negotiated in his car, Kirch built Germany's No. 2 media conglomerate from scratch and was for decades a major influence on conservative politicians, including his close friend and former Chancellor Helmut Kohl.
With Kirch now out of the picture, creditors announced the formation of a three-man receivership charged with preventing a full-scale breakup of the holding company and sale of its assets to foreign rivals.
Bavarian Gov. Edmund Stoiber, who is challenging Chancellor Gerhard Schroeder for the leadership in the Sept. 22 federal elections, vowed to see the main media operations continue and as many of the group's 10,000 jobs preserved as possible.
But Stoiber was inundated with criticism from political opponents for allowing a Munich-based bank, half-owned by his state government, to extend poorly secured loans to the privately held company whose financial plight has been known for years.
The bank, Bayerische Landesbank, is the most exposed of Kirch's many creditors, holding $1.7 billion of the group's $5.7-billion debt.
Several other bankruptcies and loan defaults over the last year have hit the bank hard and exposed Stoiber's government to accusations of cronyism.
The state bank, along with three other major creditors--Commerzbank, DZ Bank and HVB Group-- appointed the restructuring team shortly after the insolvency filing and announced a search for new investors with media expertise to manage the profitable Kirch companies once they are spun off from the unsalvageable assets.
KirchMedia includes a controlling 52.5% stake in Germany's leading broadcaster, ProSiebenSat1, as well as Europe's biggest film and television library and exclusive rights to broadcast World Cup soccer. Other Kirch holdings include rights to broadcast Formula One auto racing and a 40% stake in Axel Springer Verlag, publisher of Germany's largest circulation newspaper, Bild.
Kirch also owns broadcasting rights to the Bundesliga, and his $350-million annual payment provides as much as half of the teams' income and much of their ability to pay lavish salaries for top players.
With the soccer teams' solvency threatened by Kirch's collapse, the federal government last week said it was considering making as much as $180 million in bridge credits available to the Bundesliga, a move criticized by economists as a misuse of taxpayer funds to appease sports fans in an election year.
At a news conference in Munich after the insolvency filings, officials of the main creditor banks announced the appointment of Kirch lawyers Wolfgang van Betteray and Hans-Joachim Ziems along with local court officer Michael Jaffe as receivership administrators.
The insolvency team will draft a restructuring plan for Kirch in consultation with the creditors, who include foreign media rivals Rupert Murdoch of Australia and Italian Prime Minister Silvio Berlusconi as well as Lehman Bros. Holdings Inc., Hollywood studios, Credit Suisse Group and J.P. Morgan Chase & Co.
The new administrators, who take over from Kirch and Deputy Chief Executive Dieter Hahn, said they will seek new investors and encourage those already holding Kirch debt to provide interim funding in exchange for shares in a media group they hope to found.
Axel Springer was reported by German media to be agreeable to the restructuring attempt and will hold off activating a "put" option that would require Kirch to pay the publisher $669 million. Other major creditors such as Deutsche Bank, which had called due a $400-million loan, also indicated to the receivership team that they would be patient for a while longer.
Kirch had been in talks with Murdoch, Berlusconi and the Hollywood studios he owes $435million, but those negotiations collapsed last week after months of unsuccessful efforts to craft a rescue plan.
Betteray met with creditors to discuss how best to redeem the value of surviving assets, most notably the World Cup broadcasting rights that could revert to the sport's governing body in the event of bankruptcy. The TV rights for the games this summer in Japan and South Korea, as well as those for the 2006 World Cup, are being transferred to a Switzerland-based Kirch enterprise to shield them from rivals.