Black empire facing legal challenge from Hollinger bondholders

Hollinger Inc, the Canadian company that controls The Daily Telegraph, is facing possible legal action from bondholders and preference shares owners. Any such move would further undermine the media empire of Lord Black of Crossharbour and could precipitate a speedy break-up of the group.

Lord Black and his investment bank advisers, Lazards, have suggested there is no urgency to the strategic review now underway at Hollinger International, the publishing company that is 70 per cent controlled by the Tory peer's Hollinger Inc. However, analysts, including the credit rating agency S&P's, stressed that Hollinger Inc is the weak point in Lord Black's empire and that could mean that the current ownership structure of Hollinger International, which owns newspapers in the UK and the US, is not sustainable.

The dramatic resignation of the non-executive directors who sat on Hollinger Inc's audit committee, on Friday, leaves the company in technical breach of the terms of a $120m (£71m) bond issue last year. That could enable bondholders to seize control of the company. Analysts believe that it will be difficult to replace the departed directors.

Furthermore, holders of $100m of Hollinger Inc preference shares are reported to have sought legal advice over the bond issue. The bonds not only have rights over Hollinger Inc's only asset (its stake in Hollinger International) but an estimated $40m of the money raised went straight to Ravelston - Lord Black's private company.

Don Povilaitis, an S&P analyst, told The Independent: "Assets must be sold or someone must inject equity. Hollinger Inc's liquidity issues mean that some restructuring must occur."

Early next year, Hollinger Inc must find money to meet $7.1m in interest payments, repay $16.6m to Hollinger International, and it may be forced to redeem the preference shares.