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Sept. 1, 2021, 10:27 a.m.
Business Models

The “shadow bank” that — with the help of public pension funds — is aiding the destruction of local news

Cerberus Capital Management is entrenched in the military industrial complex and its company trained a journalist’s assassins. It also made possible the takeover of Tribune Publishing.

To the ancient Greeks, Cerberus was the hound of Hades, a multi-headed dog with a serpent’s tail who kept souls from escaping the underworld. His eyes burned with fiery lava and he vomited bile.

The canine’s namesake, Cerberus Capital Management, is a private equity firm that, like Alden Global Capital, specializes in acquiring distressed businesses — and, alongside Alden, it is now in the business of devouring newsrooms in the name of profit.

Cerberus was Alden’s financial backer for its recent takeover of Tribune Publishing, but the two secretive companies have a shared history that goes back to at least 2015.

The firm, which is heavily supported by investments from public pension funds, served as Alden’s “shadow” lender well before the Tribune deal. The largest of Cerberus’s public retirement investments come from California and Pennsylvania, two of the regions most impacted by diminishing news coverage at Alden papers.

Cerberus’s founder and CEO Stephen Feinberg, like his colleague, Alden co-founder Randall Smith, is extremely press-averse. (Cerberus did not respond to Nieman Lab’s request for comment.)

“We try to hide religiously,” Feinberg once told investors. “If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person. We will kill him. The jail sentence will be worth it.”

Presumably, he was joking.

Feinberg co-founded Cerberus in 1992 — headquartered one block up Third Avenue from Randall Smith’s Manhattan offices — and it has since grown to a $53 billion private equity powerhouse that allowed the much smaller Alden to easily take over Tribune Publishing in May.

Cerberus is what’s known as a “shadow bank.” Economist Paul McCulley coined the term in 2007, and it’s come to mean a whole spectrum of largely unregulated finance companies that offer loans and credit outside the protections and oversight of the traditional banking system.

Shadow banks, blamed for the 2008 financial meltdown, were also among the biggest bailout recipients in 2009. That’s when Cerberus-controlled Chrysler Financial took a $1.5 billion government bailout and walked away with nary a scratch after Chrysler’s collapse. That’s also when Feinberg became a close partner with Ezra Merkin, the infamous funneler of billions to Bernie Madoff’s funds.

Until recently, Cerberus had a controlling interest in scandal-ridden DynCorp — which, while under Cerberus’s control, was found at fault or fined in cases involving sexual harassment and kickbacks, with a massive human trafficking case still pending. The firm has been accused of profiting from the Sandy Hook school massacre, because it promised to unload its ownership in gun manufacturers but then didn’t — at least not until its company Remington Arms went bankrupt in 2018. And Cerberus is the owner and founder of Tier 1 Group, the company that trained four members of the Tiger Squad that assassinated and dismembered Washington Post journalist Jamal Khashoggi.

So what does a shadow bank entrenched in the murky world of private military contractors and the politics of espionage have to do with local news?

Cerberus meets Alden

The answer goes back to its enduring relationship with Alden Global Capital.

In 2015, Cerberus was among those interested in buying Alden’s Digital First Media newspaper chain (now renamed MNG Enterprises), but the sale fell through when Alden didn’t get the price it wanted.

Having failed to acquire the chain, Cerberus nonetheless partnered with Alden on October 20, 2016, according to UCC filings. Despite Alden being under investigation at the time by the Department of Labor, Cerberus made a loan to Alden, though we don’t know how much money was involved.

We do know it was secured by the MNG news chain’s assets, which, just weeks after the loan was made, were further stripped by Alden’s quiet extraction of hundreds of millions of dollars in cash. Those millions were lost — at least to MNG’s newspapers — after Alden used them to buy and shutter businesses like Fred’s Pharmacies and Payless ShoeSource.

The Cerberus loan agreement with Alden was amended in 2018, according to SEC filings.

In 2019, Cerberus lent money to an Alden subsidiary that bought the Reading Eagle and immediately laid off nearly half the paper’s staff. Again, Alden used the entire company as collateral.

Then came the Tribune Publishing takeover, completed in late May. The deal would not have happened without Cerberus agreeing to lend $218 million so that cash-strapped Alden could buy the chain. The five-year loan carries a floating interest rate, tied to the Fed rate, plus an “applicable margin.”

In keeping with its dedication to secrecy, Cerberus won’t comment on its role in the future of local news. But here’s the aftermath of its investment:

  • Tribune, which publishes Chicago Tribune, the Baltimore Sun, the Orlando Sentinel, the Hartford Courant, the Virginian-Pilot and others, cut its overall workforce by 10%, after previously cutting newsrooms by more than 30% under Alden’s watch on the Tribune board.
  • Some Tribune papers saw as much as 20% in staffing cuts after the sale. At at least one, the company stopped contributing to workers’ 401(K)s, according to union representatives.
  • The Chicago Tribune shrank from four sections to three. According to The New York Post, all Tribune papers have been ordered to cut local and feature sections by 20%, deadlines have moved up and special sections have been “paused.”
  • Last month, a 41-year-old Tribune weekly, the Bowie Blade-News, was abruptly shut down.

Public pensions as investors

Considering that eight of Cerberus’s top 10 investors are public pension systems, one can argue that the company is at least partly funded by taxpayers.

At the top of the investors list is the California Public Employees Retirement System, or CalPERS, the country’s largest public pension plan. CalPERS has plowed $2 billion into Cerberus since 2012, public records show.

Cerberus’s second-biggest investor is Pennsylvania’s Public School Employees’ Retirement System, or PSERS. (Fun fact: PSERS’ $1.6 million real estate deal with an Alden subsidiary is under FBI investigation, according to the Philadelphia Inquirer.) The system has invested $1.65 billion with Cerberus since 2003.

Other public retirements funds pouring tens of millions to billions into Cerberus include the San Francisco Employees’ Retirement System, Louisiana State Employees’ Retirement System, New Mexico Public Employees’ Retirement Association, San Diego City Employees Retirement System, New York State Teachers’ Retirement System, Oklahoma Police Pension and Retirement System, Alameda County Employees’ Retirement Association and the Arkansas Teacher Retirement System.

Because these are government employees’ funds, one could follow the logic and say that, by investing with this military-contractor-turned-publisher, we the people are unwittingly helping to finance the destruction of local news.

Urging or even forcing public pension funds to divest from questionable industries isn’t new. CalPERS once responded to mass shootings by divesting from gun companies, and in 2017 California’s legislature ordered it to divest from thermal coal companies.

The pandemic has shown us that, despite the cuts, local news organizations continue to provide essential information to communities nationwide. Perhaps it’s time to demand that public pensions divest from shadow banks that aid and abet the aggressive dismantling of the free press.

Julie Reynolds is a freelance investigative reporter and a 2009 Nieman Fellow who has written extensively about Alden for #NewsMatters, a project of the NewsGuild-Communications Workers of America labor union.

Photo of a statue of Cerberus the three-headed dog by Sean Perry used under a Creative Commons license.

POSTED     Sept. 1, 2021, 10:27 a.m.
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