'It's sad... the company is done'

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Adrian Wyld / The Canadian Press Archives (CP)

The poor state of the global economy might provide a further reprieve from what now seems like the inevitable breakup of Canwest Global Communications Corp.

But it probably will not be enough to preserve the Asper family's control of the company, which is sinking under a $3.7-billion pile of debt, declining revenue and virtually no hope of a market turnaround in anywhere near enough time to save it.

The company has until Tuesday to make a $30.4-million interest payment on US$761 million in bonds at eight per cent interest that is a month overdue. Bondholders have the right to demand payment of the full amount on that date and the company has no way of making that payment short of selling significant assets at fire-sale prices.

Canwest has negotiated extensions in the past and is furiously attempting to get another extension to recapitalize, but circumstances are conspiring against it.

It is also on the verge of breaching its covenants on another silo of debt -- $1.4 billion -- on its publishing assets, and the company reported on Thursday that operating profits on that unit were down 46 per cent for the quarter ending Feb. 28.

The rapid decline of advertising revenue in virtually all its markets, including Canadian conventional television stations, Canadian newspapers and Australian television -- the only profit growth came from specialty television -- means there is no excess cash to meet the mounting debt obligations.

However, were creditors to demand payment, it would mean the company would have to sell assets at very low prices, ensuring that loss to bondholders.

"They (the bondholders) want to get the hell out of there and they want to maximize their dollars, but they probably don't want to be sellers at the bottom of the bear market," one Bay Street analyst said.

That could mean creditors might be inclined to keep the company together as a going concern during the global economic downturn, waiting for prices to come back.

Canwest has recently sold non-core assets like its stake in The Score specialty sports channel and The New Republic magazine and has put its five secondary conventional television stations in the E! Network up for sale in a desperate attempt to keep the company out of bankruptcy.

But regardless of the decision the creditors make, the Aspers' control of the company is effectively over.

"The market cap is just over $50 million; there is no equity left," one analyst said. "The bondholders already own it. In terms of converting (bondholders') debt to equity, they are already there. It's semantics. The Aspers are already out. The equity has been wiped out."

In its second-quarter results released Thursday, Canwest took another $1.4-billion writedown, this time against its newspaper publishing assets. Total revenue was down nine per cent for the quarter -- 16 per cent in the publishing division -- and operating profit before the impairment charge was down 31 per cent.

Despite the poor financial results, Canwest stock was up five cents on Thursday to 32 cents.

At a time when additional liquidity could forestall the inevitable, the exact opposite is occurring for the company. Its 57 per cent stake in the Australian Network Ten had provided the parent company with $100 million in annual dividends in the past. But earlier this month it reported that a $10-million dividend from Australia was all that Canwest Global could expect this year.

The company's publishing division, which includes virtually all the largest papers in Canada other than the Winnipeg Free Press, the Globe and Mail and the Journal de Montreal, had also been contributing cash to help make payments on the parent company's debt. But the gloomy newspaper advertising market is not likely to improve quickly enough to prevent that division from breaching its own debt covenant in coming weeks, making another group of bondholders eligible to demand payment on another $1.4 billion in debt.

"It's a sad story. The company is done," the analyst said. "Listening to Leonard (Asper, Canwest's CEO) on the call... he sounded like a defeated man. I felt sorry for him. He is disheartened. I am disheartened just watching him on the sidelines."

Another analyst suggested that the best-case results for the company and the Aspers might be some scenario whereby the specialty channels, the newspaper division and the Australian operations were sold or taken over by the creditors.

It would leave the Aspers and existing shareholders in control of the Canadian conventional television channels and bring the company right back to where it started.

martin.cash@freepress.mb.ca

Is there a way out now?

What options does Canwest have in dealing with its creditors? It has been negotiating virtually non-stop with creditors and bondholders. It has won a couple of reprieves and might be able to continue to do so because the forced sale of assets ensures losses for everyone.

What else can Canwest do to improve its situation? The company has been cutting costs, including the elimination of close to 500 jobs at its publishing operations and the removal of $25 million in operating expenses from its broadcast division in the first six months of the fiscal year. It can keep doing more of the same, as well as continue to seek buyers for its media assets.

Is there any assistance the company can hope for from the Canadian government? There has been talk of the possibility of some bailout assistance for the broadcast sector. Canwest is also about to start licence-renewal hearings for its Canadian conventional channels. It has made it clear that it will once again seek fees for the carriage of its channels from cable and satellite carriers, as well as alterations to its local programming obligations.

Republished from the Winnipeg Free Press print edition April 11, 2009 B6