The “shadow bank” which, with the help of public pension funds, contributes to the destruction of local information “Nieman Journalism Lab

To the ancient Greeks, Cerberus was the dog of Hades, a multi-headed dog with a serpent’s tail that prevented souls from escaping from the underworld. His eyes were burning with fiery lava and he was vomiting bile.

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

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

The company, which is heavily backed by investments from public pension funds, served as Alden’s “shadow” lender long before the Tribune deal. The largest of Cerberus’ public retirement investments comes from California and Pennsylvania, two of the regions most affected by the decline in media coverage of the Alden newspapers.

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

“We try to hide ourselves religiously,” Feinberg told investors. “If someone in Cerberus has their photo in the newspaper and a photo of their apartment, we’ll do more than fire that person.” We are going to kill him. The prison sentence will be worth it.

Presumably he was joking.

Feinberg co-founded Cerberus in 1992 – headquartered one block from Randall Smith’s Manhattan office – and it has since grown into a $ 53 billion private equity powerhouse that has enabled Alden, much more. small, to easily take over Tribune Publishing in May.

Cerberus is what is called a “shadow bank”. Economist Paul McCulley coined the term in 2007, and it now refers to a variety of largely unregulated financial companies that offer loans and credits outside the protections and oversight of the traditional banking system.

Shadow banks, blamed for the 2008 financial collapse, were also among the biggest recipients of bailouts in 2009. This was when Chrysler Financial, controlled by Cerberus, took a government bailout of $ 1. $ 5 billion and walked away without a scratch after the Chrysler collapse. It was also around this time that Feinberg became a close partner of Ezra Merkin, the infamous billion-dollar funnel of Bernie Madoff’s funds.

Until recently, Cerberus held a controlling stake in scandal-ravaged DynCorp – which, although controlled by Cerberus, has been convicted or fined in cases of sexual harassment and bribery. , a case of human trafficking is still ongoing. The company was accused of profiting from the Sandy Hook school massacre because it had promised to get rid of its property in gunmakers, but did not – at least not until his company Remington Arms went bankrupt in 2018. And Cerberus is the owner and founder. of the Tier 1 group, the company that trained four members of the Tiger Squad that assassinated and dismembered Washington Post reporter Jamal Khashoggi.

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

Cerberus meets Alden

The answer goes back to his 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 he wanted. .

Having failed to acquire the channel, Cerberus nonetheless partnered with Alden on October 20, 2016, according to UCC records. Although Alden was under investigation at the time by the Department of Labor, Cerberus made a loan to Alden, although we do not know how much money was involved.

We know it was secured by the assets of news channel MNG, which, just weeks after the loan was granted, were further stripped by Alden’s covert extraction of hundreds of millions of dollars in cash. Those millions were lost – at least to the MNG newspapers – after Alden used them to buy and shut down businesses like Fred’s Pharmacies and Payless ShoeSource.

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

In 2019, Cerberus loaned money to an Alden affiliate which bought the Reading Eagle and immediately laid off nearly half of the newspaper’s staff. Again, Alden used the entire company as collateral.

Then came the takeover of Tribune Publishing, finalized at the end of May. The deal wouldn’t have happened without Cerberus agreeing to lend $ 218 million so that cash-strapped Alden could buy the channel. The five-year loan carries a variable interest rate, linked to the Fed rate, plus an “applicable margin”.

True to its dedication to secrecy, Cerberus will not comment on its role in the future of local news. But here is the rest of his investment:

  • Tribune, which publishes the Chicago Tribune, the Baltimore Sun, the Orlando Sentinel, the Hartford Courant, the Virginian-Pilot and others, has cut its overall workforce by 10%, after previously cutting newsrooms by more than 30 % under the supervision of Alden on the Board of Directors of Tribune. .
  • Some Tribune newspapers have seen staffing cuts of up to 20% after the sale. In at least one case, the company stopped contributing to workers’ 401 (K), according to union representatives.
  • The Chicago Tribune has gone from four sections to three. According to the New York Post, all Tribune papers have been ordered to cut locals and stars by 20%, deadlines have increased and special sections have been “suspended.”
  • Last month, a 41-year-old Tribune weekly, the Bowie Blade-News, was brutally shut down.

Public pensions as investors

Considering that eight of Cerberus’ top 10 investors are public pension systems, it’s safe to say the company is at least partially funded by taxpayers.

At the top of the investor list is the California Public Employees Retirement System, or CalPERS, the largest public pension plan in the country. CalPERS has invested $ 2 billion in Cerberus since 2012, according to public records.

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

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

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

Urging or even forcing public pension funds to divest from questionable industries is nothing new. CalPERS has previously responded to mass shootings by disengaging from gun companies, and in 2017 the California legislature ordered it to divest from thermal coal companies.

The pandemic has shown us that despite the cuts, local news outlets continue to provide vital information to communities nationwide. Perhaps it is time to demand that public pensions divest themselves from shadow banks that help and encourage the aggressive dismantling of the free press.

Julie reynolds is a freelance investigative journalist and 2009 Nieman Fellow who has written extensively on Alden for #NewsMatters, a project of the NewsGuild-Communications Workers of America.

Photo of Cerberus the Three-Headed Dog statue by Sean Perry, used under a Creative Commons license.