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Report: Avista writes down 75% of newspaper investment

The newspaper industry’s struggle to maintain advertising and circulation has hit the Star Tribune, purchased last year for $530m by the DLJ spin-out.

Avista Capital Partners has joined the pack of private equity firms forced to substantially write down recent investments based on fair value accounting standards.

The New York-based firm at the end of 2007 wrote down 75 percent of its $100 million (€65 million) equity investment in the Star Tribune, according to the US newspaper, which earlier this week published a report based on an investor letter it obtained.

“In the past year, the newspaper industry has suffered greater than expected declines in circulation and advertising revenue, particularly in print classified advertising,” the letter said. “The outlook in the near to medium term remains uncertain.”

A spokeswoman for Avista declined comment.

In January 2007, Avista purchased the paper, which is the largest daily newspaper in the Minneapolis and St. Paul, Minnesota area, from The McClatchy Company in a $530 million transaction.

It is not just the equity component that has lost value, the Star Tribune said. Approximately $340 million in debt related to the deal was recently valued at 56 cents on the dollar, while a $96 million subordinate tranche is trading at 10 cents on the dollar.

The letter denied speculation that the Star Tribune was poised for bankruptcy, which was reportedly sparked by the hire of The Blackstone Group to analyse the newspaper’s balance sheet.

“The Star Tribune currently has sufficient liquidity and is up to date on all its debt payment obligations,” the letter said.

Earlier this week, Kohlberg Kravis Roberts’ listed Euronext fund wrote down $252 million in investments.

Avista spun out of DLJ Merchant Banking, the private equity arm of Credit Suisse First Boston, in September of 2005 and invests in healthcare, media and energy.