The future of the owners of the Ten Network in Australia, Canwest Global Communications, could be decided next week.
Canwest is struggling under more than $3 billion of debt to its banks and a group of noteholders, and it can’t meet its interest payments.
Advertising revenue at its papers is falling, so is circulation, the Ten Network is a loss maker at the moment, as is the company’s Canadian TV businesses.
Only some Pay TV assets seem to be doing reasonably well, but not well enough to attract buyers with pockets deep enough to bail out Canwest.
A Canadian investment company, Fairfax Financial (not related to our Fairfaxes) wants to put in money, but wants the controlling Asper family to end the dual share structure which keeps the Aspers in control.
Fairfax has around 22% of Canwest and has been a buyer as the shares have plunged in the past 18 months.
Canwest won a week’s extension on a $C30 million interest payment from its noteholders, thereby once again escaping receivership.
The news helped Ten shares in Australia rise 3.5c to 80c.
Canwest shares sank 7c Canadian on Monday to 25c: that was a fall of 23% as investors increasingly thought the company would miss the latest deadline. They fell another 2c to 23c Canadian on Tuesday.
The new deadline, April 21 (next Tuesday Canadian time, Wednesday Australian time), is the same as the deadline for talks with the company’s banks.
Those talks were extended on April 7 for two weeks.
But the latest extension, which came at just before midnight Tuesday, Canadian east coast time, is down from the previous two weeks grace from the holders of the 8% notes.
Now the company has to turn round and negotiate with its banks and the noteholders at the same time over the next week.
The struggle by Canwest to remain alive, and its controlling family shareholders, the Aspers, to keep control of the group, continues to fascinate Canadian business.
Canwest is the country’s biggest media group and its slow decline to being virtually worthless is grabbing headlines.
Debt holders have agreed not to demand payment of their notes for a period that ends on April 21, Canwest said in a statement.
Canwest subsidiary Canwest Media Inc "continues discussions with its senior lenders and noteholders to develop a framework for a potential recapitalization transaction and to secure the necessary extensions to allow the recapitalization process to process," the Winnipeg, Manitoba-based company said.
Tuesday was the day by which Canwest had to pay $30.4 million in interest to holders of the 8% senior subordinated notes. The payment was originally due March 15, but Canwest missed it.
Under the terms of the debt, investors can demand the repayment of about $C761 million of outstanding principal on the notes if Canwest fails to pay the interest.
While critical, the interest payment is only the tip of the iceberg for Winnipeg, Manitoba-based Canwest, which has debts of about $C3.7 billion ($US3.03 billion), some dating back to its 2000 acquisition of newspaper assets from Hollinger International.
Canwest also said Canwest Limited Partnership has initiated talks with its senior lenders about amending financial covenants under its senior credit facility
"Canwest also announced that Canwest Limited Partnership has initiated discussions with its senior lenders with respect to an amendment of the financial covenants under its senior credit facility to enable Canwest Limited Partnership to maintain compliance with these financial covenants through the remainder of fiscal 2009," Canwest said in its statement
That’s a reference to media reports over Easter which pointed out one breach and another approaching breach of loan covenants.
Toronto paper, The Globe and Mail, reported that CanWest has broken a bank covenant that requires the holding company of its operations, CanWest Media Inc., to keep its debt below 5.75 times EBITDA (earnings before interest, taxes, depreciation and amortization).
The company told shareholders in last week’s second quarter report that ratio is now at 6.35.
And the company is now on the verge of breaking yet another covenant. Debt at its newspaper arm, CanWest LP, must stay below 5.75 times EBITDA, but the ratio climbed to 5.66 times in the most recent quarter as advertising income slumped 16%. That covenant will be breached this quarter unless the company can cut debt somehow.
The fact that Canwest is trying to relax these covenants means it believes the second breach will happen.
The trouble for Canwest is that if it makes the $US30.4 million payment to its noteholders, the senior lenders in the banks could very well seize or block that payment to meet their missing payments, or they could allow the payment and then use it as an act of default to put the company into receivership.
A leading Canadian broking analyst said this week that Canwest Global shares were essentially worthless and should be avoided by investors.
"Given the significant liquidity challenges facing the company, we see no residual value in the shares of CanWest," BMO Capital Markets analyst Tim Casey wrote in a note to clients.
"Based on these major liquidity challenges, it seems unlikely to us that CanWest can continue in its current form," Casey wrote, adding that timely and successful asset sales also seem unlikely.
Canwest owns a chain of Canadian daily newspapers, including the flagship National Post, as well as Canada’s Global TV network.
Last week, CanWest posted a net loss of $C1.44 billion for the three months ended February 28.
This included a $1.19 billion write-down r
