• by Erik Sass , July 17, 2009

In a major setback for the hedge-fund investor, Quadrangle Group has lost control of Alpha Media's Maxim to Cerberus Capital Management just two years after buying the lad mag from Dennis Publishing.

Cerberus was able to wrest control of Alpha Media from Quadrangle after the latter could not make scheduled payments servicing a $100 million loan from Cerberus that helped pay for the original $250 million acquisition in August 2007.

A creditor takeover was rumored as early as November 2008, when The Wall Street Journal noted that Alpha had technically defaulted on its loans under the terms of the lending covenants with Cerberus, Credit Suisse and other creditors. Quadrangle and Alpha's failure to negotiate a debt restructuring agreement only added to the speculation.

Indeed, Quadrangle encountered what many in the media business have termed a "perfect storm." Beset by declining ad pages due to Internet competition and a weakening economy, Alpha Media was forced to shutter Maxim's siblings, Stuff and Blender, in August 2007 and March of this year, respectively.

Maxim itself has shrunk to a shadow of its former self, with 249 ad pages in the first six months of 2009, compared to 468 in the first half of 2005.

Neither Alpha Media or Quadrangle could be reached for comment. And while Cereberus formally takes control of Maxim, it is not expected to be a long-term holder.

Quadrangle joins a growing list of private-equity investors that bought big media companies at the height of the credit bubble, and now find themselves saddled with excessively burdensome debts.

In December 2006, Avista Capital Partners bought the ailing Star Tribune of Minneapolis for $530 million, only to beat an ignominious retreat in January of this year as the newspaper filed for Chapter 11 bankruptcy protection. (This sequence of events was especially ironic given that the previous owner, McClatchy, had paid $1.2 billion for the newspaper in 1998, and sold it to Avista at a substantial loss.) Philadelphia Inquirer and Daily News in 2006, as Philadelphia Media Holdings also filed for Chapter 11 bankruptcy protection in February 2009.

Finally, rumors have circulated that creditors plan to force Clear Channel Communications into default, allowing them to take possession of the company from Bain Capital Partners and Thomas H. Lee Partners, private-equity firms that engineered the $22 billion shareholder buyout in 2007.