Tipping point at CanWest
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Andrew Willis, The Globe and Mail
January 10, 2010
CanWest Global Communications CEO Leonard Asper is making no secret of his falling out with his bankers.
A decades-long relationship with Bank of Nova Scotia and other lenders who funded creation of Canada’s largest media company is now severed: CanWest’s CEO confirmed lenders pushed newspaper subsidiary CanWest LP into court-supervised creditor protection over Mr. Asper’s protests.
In a letter to Scotiabank (cited by my colleague Grant Robertson) Mr. Asper argued the sale will only benefit the banks. “I profoundly disagree with an early CCAA filing by the [newspaper division],” Mr. Asper wrote. “I am particularly concerned that such a filing will result in undue and unnecessary harm to the [division's] stakeholders.”
“We simply ask for … a solution that would result in a better outcome for a wider group of stakeholders,” Mr. Asper said.
Yet the banks chose to push CanWest into creditor protection, a move that means the chain is up for sale, and Mr. Asper is out.
What was the tipping point? Sources say the banks decided to stake their claim in the last week of November, when CanWest published financial results for its fiscal year.
CanWest LP executives and creditors held out faint hopes of restructuring without seeking creditor protection, though the move was always a strong possibility. Sources working with the chain’s lenders said the court filing became inevitable when CanWest LP reported weaker-than-expected financial results.
CanWest’s senior lenders decided the chain wasn’t generating enough cash to satisfy all its creditors, and that more junior lenders faced a larger-than-expected haircut. The company’s debt load is more than $1.45-billion, according to a DBRS report on Friday, and the chain is expected to fetch $1-billion, at best, when it is sold. Clearly, someone is going to take a haircut. Senior lenders, however, are expected to collect 100 cents on the dollar.
“Everyone recognized that there just wasn’t going to be enough cash to go around, and that there would be a squabble over who is entitled to what,” said a banker working for one lender, adding that once a fight begins, the courts are the best venue for sorting out creditor claims. The banker said CanWest generated a third less cash than expected in 2009, largely due to weak advertising sales at the chain.
A number of sources say rival media companies are not interested in CanWest’s entire stable of papers: Bankers and media executives close to Torstar said chairman John Hondreich has completely ruled out making a bid, as the debt-heavy company deals with its own issues. There may be bids for regional papers, but sources working with CanWest LP’s lenders and at the company say there is more to be gained from keeping the company whole.
CanWest’s lenders are selling 11 big city papers, including the National Post, and 35 community papers. RBC Dominion Securities is running the auction, with creditors already making what’s known as a “stalking horse” bid that sets a floor price on the chain. Sources close to the lenders say the most likely scenario is an eventual initial public offering of the entire chain, after lenders swap their debt for equity.
“There is a value that comes with offering a national advertising package to a national advertiser like Coke or Nike,” said a lawyer working for CanWest LP. He said that need for a cross-country chain is behind moves that put the National Post, with its Toronto readership, into the larger newspaper chain. The Post was originally held within CanWest’s parent company; ownership was shifted to the newspaper group after the parent filed for creditor protection.
CanWest LP’s total debt included $876-million of secured bank debt, $438-million of senior subordinated notes and $75-million subordinated bank debt, according to credit rating agency DBRS.
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