Did Maxwell Leave A House Of Cards?

For a world-class publicity hound, Robert Maxwell certainly kept his personal finances under wraps. The British media baron projected a gilt-edged image: Buzzing to and from his Oxford estate by helicopter and buying and selling companies like chess pieces. In its annual roundup of billionaires last July, Forbes estimated Maxwell's net worth at $1.9 billion.

But since the tycoon's mysterious death at sea on Nov. 5, the facade has been crumbling. As his creditors start picking through the Maxwell estate, they're making an unpleasant discovery: Most of Maxwell's wealth was illusory. The 68-year-old mogul had mortgaged nearly every family asset to underwrite his acquisitions.

FRAUD PROBE. To appease his bankers, Maxwell frantically shifted assets and debt from one company to another. Creditors had recently been pressing Maxwell. In one case, he failed to deliver the collateral for a loan that he had promised to deliver. Several of his loans are in default, and one is under investigation by Britain's Serious Fraud Office.

Now, to prevent the empire from unraveling, Maxwell's sons Kevin and Ian are scrambling to convince more than 25 banks that their father's borrowing spree has not left them bankrupt. On Nov. 25, they gained a bit of breathing room. At a 2 1/2-hour meeting in London, accounting firm Coopers & Lybrand and longtime Maxwell adviser Bankers Trust Co. presented the banks with a report that estimated Maxwell family assets to be $350 million more than its liabilities. The banks, which include Britain's National Westminster PLC and Lloyds Bank PLC, agreed to hold off any foreclosure action until Dec. 20. They'll also prepare a rescue plan for Maxwell's family assets within 10 days.

The big crunch for Kevin and Ian is $1.5 billion worth of debt that their father ran up to buy everything from British soccer teams to newspapers in East Germany and Israel. Although these and other properties are owned by private Maxwell companies, many of the loans were secured by shares in his publicly traded flagship, Maxwell Communication Corp. (MCC). The company, which owns book publisher Macmillan Inc. and the Official Airlines Guides Inc., also lumbers under $2.3 billion in debt.

Fears that MCC would have trouble meeting its repayment schedule had been eroding the company's share price even before Maxwell died (chart). The stock fell from $4.28 in early May to $2.18 the day Maxwell vanished off his 180-foot motor yacht. Then it plunged as low as 63~. The scary part for creditors: Kevin Maxwell recently disclosed that more than four-fifths of the family's 68% MCC stake was pledged as collateral for loans. In early May, that stake was worth $1.9 billion. But the shares now are worth about $440 million--not sufficient collateral to cover the private debt.

So what happens now? The Maxwells and most of their bankers hope to agree on a workout of the debt. Such an arrangement would be similar to the complex pact that saved media baron Rupert Murdoch when he came close to defaulting on his $8.2 billion debt last year. "You don't want one bank pulling the plug, threatening a landslide," says one banker. But in return, the Maxwells would have to sell many of their assets. The yacht that took Robert Maxwell on his fateful cruise would surely go, as would his private jet.

FANCY FOOTWORK. Less certain is the future of such money-losing papers as the New York Daily News and The European. Kevin and Ian insist they will keep them. The family also hopes to retain control of its other major holding, Mirror Group Newspapers PLC, which publishes Britain's Daily Mirror. Its 51% stake is worth $ 450 million. But as with MCC, Maxwell mortgaged many of these shares to secure loans. Also unclear is the future of MCC: Rumors have flown in the City of London that it, too, might have to be sold. But Kevin Maxwell has said that asset sales have already raised most of the $750 million due in MCC's next debt payment in October, 1992. These included the Nov. 7 sale of a majority stake in Berlitz International Inc. to a Japanese publishing company. Still, he admits that the balance of MCC debt will have to be restructured as well, since MCC won't be able to raise an additional $1.26 billion by October, 1994.

Things never came to such a pass while Maxwell was alive, but only because he used some fancy footwork to stay ahead of the bankers. One case in point: a $104 million loan from Swiss Bank Corp. that is now under investigation by Britain's fraud mffice.

Maxwell borrowed the money last August to bid for the entire portfolio of a British investment fund called First To kyo Index Trust PLC. Maxwell, who was managing the fund through a subsidiary, opted to bid for the portfolio after the fund's directors discovered he had lent 84% of its assets to another Maxwell company without their consent. In an offering document for First Tokyo, Maxwell acknowledged that "the manner and terms of the securities lending program should have been approved by a resolution of the board."

Swiss Bank was to get the entire portfolio as collateral for the loan. But when handover time came in October, Maxwell didn't deliver. "Not a single share turned up," says Timothy Shepheard-Walwyn, a Swiss Bank official in London. After Maxwell died, Swiss Bank was told by Maxwell executives that all the shares had been sold. The bank refused to accept less-secure collateral in other Maxwell properties and turned the matter over to British police. Swiss Bank is now also pressing for preferred treatment over other creditors.

The Swiss Bank incident suggests Maxwell was having trouble keeping up his adroit juggling of debts shortly before his death. Another sign was his recent falling out with Goldman, Sachs & Co.: In August, the investment bank revealed it was holding about $190 million in MCC and Mirror Group shares as collateral for a loan it had made to Maxwell. A source close to Goldman says the firm later became concerned about the eroding share price of both companies. When it pressed Maxwell to repay the loan, he stalled. So to show Maxwell it meant business, Goldman sold 2.2 million MCC shares just days before his death.

With Goldman and others calling an end to Maxwell's legerdemain, his freedom to act as a big-spending billionaire was already getting hedged in. Now, his heirs are using all their skills to emerge from the mess as mere millionaires.

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