Bankruptcies roil Yucaipa, Willis Stein portfolio companies

The private equity firms may lose millions as Yucaipa’s Aloha Airlines and Stein’s Ziff Davis file for Chapter 11.

The Yucaipa Companies and Willis Stein have each endured the collapse of a high-profile portfolio company over the past month, possibly costing the firms millions in losses.

Aloha Airgroup has shut down its passenger operations after filing for bankruptcy for the second time since 2004. Los-Angeles based Yucaipa rescued Aloha after its first bankruptcy with a $43 million equity infusion, and currently holds $106 million (€68 million) in secured debt in the collapsing airline.

The beleaguered airline said it had only $3.8 million in cash on hand, with all of its assets encumbered, according to a report in the Associated Press.

The Yucaipa Companies, founded in 1986 by billionaire supermarket mogul Ron Burkle, had been shopping

 Aloha for over a year, as the airline posted an $81 million loss in 2007. The total loss Yucapia will sustain from Aloha’s collapse will be determined when bankruptcy proceedings are concluded.

Aloha, wounded by the twin forces of upstart competition and rising fuel prices, employed roughly 3,500 people.

Meanwhile, Willis Stein-backed Ziff Davis Holdings, the New York-based publisher of technology magazines and websites, has filed its prenegotiated Chapter 11 plan in court, which gives senior bondholders 88.8 percent of new common stock in the reorganized company, according to a statement.

Willis Stein’s 85.6 percent equity share will be canceled outright, pending completion of the bankruptcy agreement. The Chicago-based mid-market specialist bought Ziff Davis from Japan’s Softbank in 1999 for $780 million.

After spinning off some of its media subsidiaries last year, the company estimated its assets at $313 million, with debts of about $500 million, according to court bankruptcy documents.

Ziff Davis profited greatly from the dot-com boom, producing tech-oriented publications like PC Magazine. However, when the tech bubble bust, the company was hit hard by declining ad and subscriber revenues.

Ziff Davis’ bankruptcy arrangement has met challenges from subordinated shareholders who have yet to agree to the terms of the debt restructuring agreement.

Yucaipa – a firm whose deals are often backed by labour unions – is currently raising two separate mid-market buyout and growth funds, the $2 billion Yucaipa American Alliance Fund II and the $899 million Yucaipa Corporate Initiatives Fund II, according to the Probitas Partners 2008 Private Equity Deskbook.

Both Yucaipa and Willis Stein declined comment.