For Alden Global Capital, 2017 was a year of questionable investments in Russia, Brazil and Angola

By Julie Reynolds

Alden Global Capital spent much of last year gutting its newspapers to help finance a global spending spree, taking stakes in a Russian energy outfit linked to Vladimir Putin, a coal giant fresh out of bankruptcy, and even a cemetery concern specializing in “deathcare.”

Virtually all of the New York-based hedge fund’s investments are aimed at wringing profits from distress, though the profit part doesn’t always work out. But there’s certainly no lack of distress — particularly in Alden’s Digital First Media newsrooms, reeling from round after round of layoffs.

Not even DFM’s executive suite has been spared. The company decided not to replace its departed chief executive, Steve Rossi, who retired in 2017.

“Alden Global Capital has made cutting an art form,” writes newspaper analyst Ken Doctor. “It has laid off numerous editors and publishers, as well as hundreds of reporters, but this year, it outdid itself: As CEO Steve Rossi retired, it declined to fill his position, opting for a (presumably lower-priced) COO ‘reporting to the board.’”

Alden started 2018 by announcing voluntary buyouts at several of its papers. The company linked the job cuts to “ongoing realignment efforts” in an email sent Jan. 4 to employees at all papers in the company’s Philadelphia cluster.

Some observers wonder if 2018 might be the year Alden dumps its DFM newspaper holdings, since so little is left to cut. Doctor has been saying for months that a sell-off might be near. What is clear is that since buying and stripping the Orange County Register in 2016, Alden has shown little interest in acquiring more media companies. (An Alden affiliate, however, keeps buying old newspaper buildings, reportedly purchasing nearly 100 of them in June.)

Instead, the Manhattan-based vulture hedge fund spent 2017 taking advantage of “distressed opportunities” around the world, while continuing to slash and burn staff and resources at Digital First Media’s 90-plus daily and weekly publications.

Our review of published sources, court documents and public filings shows Alden has taken “distress” to a new level — a number of its recent acquisitions include companies dogged by allegations of fraud, pollution and corruption.

No one really knows what behind-the-curtain investment deals went down last year, since Alden is a private company with a strong penchant for secrecy. But the Securities and Exchange Commission requires it to disclose investments in publicly traded companies.

Here’s a compilation of 2017’s more remarkable dealings.

 

The Russian connection

A Russian news site shows pollution in Chelyabinsk, where Alden invested in Mechel steel plants. Another site reported that Mechel produced 46 percent of the city’s air pollution before its Mechel-Coke plant was shut down in June due to emissions violations.

Securities and Exchange Commission filings show Alden started the year with $1.9 million worth of stock in Mechel, a Russian energy and steel company that in February faced criminal charges for allegedly not containing its pollution in the city of Chelyabinsk.

The announcement of the unprecedented prosecution coincided with “lobbying by well-known names around President Vladimir Putin to save Mechel… from the multibillion-ruble cost of installing the clean-air controls required by Russian law,” wrote Moscow journalist and blogger John Helmer (who, by the way, faced a possible assassination attempt seven years ago for his reporting on Russian industrialists).

Alden has banked on Russian turmoil before, as Bloomberg reported in 2014.

In March, Alden sold its Mechel shares, SEC filings show. By summer, additional criminal charges were filed. Mechel’s coke plant was shut down in June after failing to comply with pollution restrictions.

But Alden continued investing in energy, including other companies plagued by scandal and environmental lawsuits.

Brazil — energy, scandals and bribes

Coverage of Operation Car Wash by The Guardian.

Of course, Alden had to jump in after Brazil’s credit rating was cut to junk status in late 2015. Since 2016, Alden has held a major stake in Brazil’s state-run energy firm, Companhia Energética de Minas Gerais, also called Cemig.

That’s also about the time police began their investigations into what would become Brazil’s largest government corruption scandal, Operation Car Wash, which tanked the country’s economy and left thousands of skilled workers in the lurch.

Cemig is partly owned by the Brazilian state of Minas Gerais, and the firm’s interests are protected by a senator who’s been kicked in and out of the senate and is the subject of bribery allegations too numerous to list here. Early last year, Cemig’s principal shareholder, construction firm Andrade Gutierrez, accepted a plea deal for its role in the Operation Car Wash scandal. In June, Cemig itself was being investigated. “Police suspect politicians were bribed to use their influence to help companies that did business with the power companies,” Reuters reported. By fall, Andrade Gutierrez announced it would sell its Cemig shares in an effort to clean up its image.

Alden, however, held on tight throughout. Its latest SEC filing (reporting through September) shows it still owned 781,000 shares, worth about $1.9 million, virtually unchanged since 2016, when Alden bought the shares.

 

Trouble in Angola

Cobalt International Energy’s website showing its Angola drilling sites, projects tied to fraud allegations.

Late in 2017, Alden bought a $2.9 million stake in Houston-based Cobalt International Energy, which filed for bankruptcy on Dec. 14.

In February, Cobalt announced the Justice Department had closed an investigation into whether the firm had violated the Foreign Corrupt Practices Act in Angola. Cobalt’s local partner in an oil-exploration contract there was secretly controlled by three of Angola’s most powerful officials, but the company said it didn’t know about the secret owners when it signed its deal with the authoritarian government.

But in June, a group of investors was granted class action status in a federal lawsuit alleging Cobalt acquired its Angolan wells “through apparent bribery and by partnering with shell companies in Angola that were partially owned by high-level Angolan officials,” and had misled investors about its knowledge of the secret ownership.

The suit, however, had to be dropped when Cobalt filed bankruptcy in December, though the plaintiffs have maintained their right to re-file once the bankruptcy case is closed.

Alden bought its 12 million shares of Cobalt sometime last summer, just as Angola’s state-owned energy company Sonangol backed out of a deal to buy Cobalt’s offshore oil stakes for a mind-boggling $1.75 billion. The dispute had to be arbitrated by an international tribunal.

On Dec. 19, Cobalt announced it had settled with Angola for a mere $500 million, pending approval of the deal in Houston’s bankruptcy court.

 

Investing in coal, not coal miners

Photo | Adobe Stock

Back in 2013, coal giant Peabody Energy tried to leave some 20,000 workers without pensions and retiree health care, a plot that was averted with an undisclosed settlement that Peabody undertook in a failed attempt to avert bankruptcy.

When Peabody ultimately did file for bankruptcy in 2016, its lawyers again hoped to axe the workers’ pension plan, worth $643 million, according to the United Mine Workers of America. In a last-minute deal, the union settled for $75 million.

The bankruptcy itself was suspect, and one critic in the financial press noted that “the bankruptcy settlement reserved much of the proceeds to certain of the stakeholders, notably a core group of creditors and Peabody management. Stockholders were wiped out… .”

Court filings show another last-minute deal, this time with the Justice Department. Peabody was held responsible for environmental claims by the Environmental Protection Agency, seven Native American tribes and others. The claims totaled in the billions, but Peabody agreed to set up a $43 million trust for settlements with the tribes and others.

The company’s environmental record has long been abysmal — in a 2009 Newsweek ranking of 500 companies for “green” compliance, Peabody came in last.

When a new, streamlined Peabody finally emerged from these legal dust-ups, many of its former top executives remained, poised to collect tens of millions in stock bonuses as part of the company’s bankruptcy exit plan.

That’s right about the time Alden entered the picture last year. The latest SEC filings show Alden owns 1.3 million shares of Peabody, valued at $38.9 million. In fact, Peabody now makes up almost 40 percent of Alden’s publicly traded investments.

 

Deathcare. It’s a word. And an investment.

Photo | Adobe Stock

In the spring, Alden took a $2.5 million stake in floundering StoneMor Partners LP, “one of the largest companies in the deathcare industry, servicing thousands of families in a caring, personalized manner.”

That’s straight from the company’s website. In other words, StoneMor is in the cemetery business — a fitting investment for a vulture firm.

But it was a quick in-and-out as StoneMor’s CEO resigned and investor lawsuits piled up. Shareholders claimed the company had engaged in a “financial shell game” before it admitted “there were weaknesses with its internal controls” that led to incorrect financial statements, the Delaware County Daily Times reports. The consolidated lawsuits were thrown out by a federal judge in November, but Alden was already gone.

 

Drug deal gone bad

We’ve reported extensively how in December 2016, Alden paid $158 million for its stake in the Fred’s Pharmacy chain. Then Alden took two seats on the board. Its top exec, Heath Freeman, was named chairman.

As of January 4, Alden’s 9.3 million shares were worth less than $36 million — a loss in value of $122 million.

 

Flip, not flop

The Patriot-News building in Harrisburg. | Google Maps

Twenty Lake Holdings, the real estate arm of Alden/Digital First Media, made a quick million bucks by flipping the Harrisburg building once occupied by The Patriot-News. Alden bought the building for $644,286 in June, then sold it for $1.6 million six months later, on Dec. 20.

Twenty Lake is best known for handling the mass sell-off of Digital First Media newspapers’ office buildings, printing plants and land shortly after Alden took over the chain. It also mixes Alden founder Randall Smith’s many Florida mansions with its holdings.

The Patriot-News isn’t a Digital First Media paper, but Twenty Lake must have seen impressive enough returns from its DFM real estate sales to warrant a dive into other news chains’ assets.

On Friday, the Public School Employees’ Retirement System announced they were the buyers of the Patriot building. According to PSERS, Twenty Lake bought the building in June, “as part of a bundle of 90 distressed former newspaper properties across the country.”

The group made this statement about the amount it paid:

“The $644,000 purchase price allocated by Twenty Lakes (sic) as part of the bundled sale bears no direct relationship to the true value of the property. The $1.6 million purchase price paid by PSERS represents the fair value for the eight-parcel property.”

Not everyone found this explanation of “true value” convincing. Some Harrisburg residents were rankled that taxpayers would end up paying a share of the million-dollar price hike, since a third of PSERS’ contributions comes from the state.

“The fair market value is the price agreed to by the seller and buyer,” wrote one commenter on the Patriot-News website. “In June of 2016 the fair market value was $644,000. In December the fair market value is $1.6 million…Why did the fair market value increase nearly $1 million?”