Avalon Equity Fund, the investment group that owns The Washington Blade, The Southern Voice, Genre magazine, Express Gay News, Houston Voice, The New York Blade, The 411 Magazine and has a non-majority stake in HX Media has been placed into federal receivership by the Small Business Association, which will liquidate the companies and distribute the proceeds to investors.
The Avalon Fund has been in receivership since last August, a fact that its media properties have been either unaware of, or unwilling to admit, which is a strange position for a media organization to be in, to say the least. Gay City News reports:
“As a consequence of defendant’s continuing violation… SBA is entitled to the injunctive relief… including the appointment of SBA as receiver of [the Avalon Equity Fund],” the SBA wrote in an August 2008 court filing, which was only recently found by Gay City News.
Avalon, which owns a stake in the company that publishes the New York Blade and HX, was licensed by the SBA as a small business investment company (SBIC) in 2000. Through 2007, it borrowed just over $38 million from the federal agency to invest in gay media properties and a range of other ventures.
As part of its contract with the SBA, Avalon was required to have private money or assets in the fund from sources, such as individual investors, that had a value equal to half the amount it borrowed from the SBA or just over $19 million.
In 2007, the SBA wrote Avalon that it had a “condition of capital impairment” because the value of its private assets had fallen below the required level.
In its 2008 lawsuit seeking to force the receivership, the SBA wrote that the “capital impairment” was 61 percent in August of 2007 and that it rose to over 134 percent by December of that year.
Capital impairment is a “type of solvency test,” said Tom Morris, director of SBA’s Office of Liquidation. If a hypothetical SBIC borrowed $40 million from the SBA and was required to have $20 million in private capital, its capital impairment would be 50 percent if it reported realized and unrealized losses totaling $10 million, Morris said…
David W. Unger, an Avalon founder and managing partner, did not respond to a call seeking comment, and Benjamin E. Brandes, Avalon’s other founder and managing partner, told Gay City News he had little information.”
The report goes on to say that HX publisher Matthew Bank doesn’t think the receivership will effect HX Media and that the publications will not go on the block til September at the earliest.