Media conglomerate Canwest receives approval for court protection

CanWest News Service
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TORONTO - Canwest Global Communications Corp. (TSX:CGS), owner of Global Television and the National Post newspaper, has received court approval for a bankruptcy restructuring that affects a chunk of its operations, deals with its huge debts and puts the media company's ownership potentially into foreign hands.
Tuesday's approval from Ontario's Superior Court of Justice starts the ball rolling for proceedings under the federal bankruptcy protection law for several major Canwest divisions, as the company works to restructure a mountain of debt.
The bankruptcy filing affects just over a fifth of the company's businesses, or 1,700 of 7,400 employees, but operations which carry much of Canwest's bond debt. But it also excludes most of its big-city newspapers, specialty TV channels and other properties, which suggests that a streamlining of Canwest may not lead to widespread cuts or job losses.
The company said it will be business as usual while it restructures over the next several months. However, the long-term future of its big city newspapers from Vancouver to Montreal, its Global TV operations and other businesses remains uncertain.
Some may be sold to Canadian private investors under an auction process and other non-core assets may be wound down or closed as the company's U.S. creditors, the expected new owners, assert themselves in the restructuring process.
Canwest has been struggling for the last two years to deal with a $4 billion debt load, which the Winnipeg-based broadcaster took on when it bought the former Southam newspapers and the National Post earlier this decade.
Business units that will be filing for creditor protection include the Canwest Television Limited Partnership, which holds Global Television, MovieTime, DejaView and Fox Sports World, and The National Post Company.
Canwest president and CEO Leonard Asper told the company's employees in an internal memo that executives were working to minimize the impact on the media giant's daily operations.
"This controlled and orderly financial restructuring plan will provide a renewed financial outlook for these business units and put them on a stronger footing for the future," he wrote.
"Most importantly in all of this is that for you, your salary, benefits and pension remain the same, your reporting and the management of your operation also remains the same. We have worked to ensure that our financial restructuring plan minimizes - to the extent possible - the disruption to you and the operations."
Asper added in a statement that the company believes the restructuring can be implemented in four to six months while Canwest continues to operate under the federal bankruptcy protection law, the Companies' Creditors Arrangement Act.
That means, if all goes according to plan, Canwest's television stations and newspapers will continue to operate without any visible turbulence to the average Canadian.
Many analysts had expected Canwest to file for CCAA protection for months, but the media conglomerate managed to secure numerous payment extensions with its lenders throughout the summer as it sold assets and streamlined operations to reduce costs and pay down some debt.
"The company finally realized that trying to manage the process of debt restructuring out of the confines of court protection was impossible," said Carmi Levy, a media analyst at AR Communications Inc. in London, Ont.
"They certainly did everything in their power to try to make it work... but they clearly realized there was no way out, without seeking this form of protection."
FTI Consulting Canada, the Canadian wing of a Baltimore-based advisory firm, will serve as the court-appointed monitor of the restructuring process.
Canwest reached a deal with a key group of lenders - mainly U.S. and foreign distressed funds that own most of the company's bonds - which will give them control of most of the restructured media company. Current shareholders would own just 2.3 per cent of the shares of the new Canwest, effectively wiping out most of their value.
Asper and other members of Canwest's founding family, which now controls the company through multiple voting shares, would retain a small stake in the company, expected to be under 10 per cent. The family has agreed to invest up to $15 million in the restructured company.
With the distressed debt funds that hold Canwest's debt effectively running the bankruptcy process, the planned restructuring will require talks with the CRTC and federal officials about whether the company's planned future ownership structure meets Canada's media foreign ownership limits.
This was an issue two years ago when Canwest engineered a takeover of Alliance Atlantis Communications in partnership with Wall Street investment banker Goldman Sachs.
Under that deal, Canwest acquired 36 per cent of 13 Alliance Atlantis specialty TV channels while Goldman bought 64 per cent, a level far above Canadian foreign media ownership limits.
However, the CRTC approved the deal after the partners persuaded it that Canwest - not its giant Wall Street financial partner - would have effective operating control of the TV channels.
The company's current shares were suspended Tuesday by the Toronto Stock Exchange for possible delisting, a move that is expected when publicly traded companies file for creditor protection.
The filing does not include specialty channels Canwest bought from Alliance Atlantis in 2007, nor the subsidiary that owns other newspapers, among which are the Montreal Gazette, the Calgary Herald, the Edmonton Journal and the Vancouver Sun and Province, or the company's online operations including the Web portal.
It "will be a much smaller, leaner operation," said Levy.
"The brand will continue to exist because there remains a significant national value to it, and recognition of it, but the number of assets that it owns will be slashed, assets will continue to be sold."
Aside from asset sales, the changes at Canwest will likely draw little notice from viewers and readers because they'll all be done behind-the-scenes, suggested Tony Demarin of BCV Asset Management in Winnipeg.
This is "not much different than what Air Canada went through when they reorganized, or what some of the auto manufacturers went through in the United States," Demarin suggested.
"Bankruptcy is a misunderstood term. It's a legal tool companies can use to shed some of their legacy debt and cost problems that are hampering their operating divisions from continuing to operate."
Last week, a published report said Paul Godfrey, CEO of Canwest's National Post daily in Toronto, has been approached by private equity funds that want to buy some or all of the Winnipeg media company's papers.
Canwest asserted last week that its newspaper assets aren't officially up for sale at this point, but the report said they're expected to hit the auction block within two months. Godfrey declined comment Tuesday.
The fact the papers, except the Post, are not filing for creditor protection, may make it easier for such a deal to be done.
Canwest has been selling pieces of its business in recent weeks to show lenders that it's making progress on reworking its operations.
Most recently it sold off its majority stake in Australian broadcaster Ten Network Holdings, in addition to past sales of its E!-branded TV stations and U.S. political magazine The New Republic.
The so-called Ad Hoc Committee was formed by an influential group of creditors that own a specific part of Canwest's overall debt.
Canwest says the committee represents more than 70 per cent of the eight per cent senior notes issued by Canwest Media Inc., one of Canwest's main subsidiaries.
Under the CCAA, any restructuring has to be approved by all classes of creditors and by the court that's overseeing the case.
The federal law has been used by Air Canada, Stelco, Algoma Steel and many other companies, including newsprint giant AbitibiBowater, to streamline, pay down debt and emerge leaner and more profitable companies.

Organizations: Canwest, National Post Company, Global Television TSX Superior Court Southam Alliance Atlantis Communications CRTC AR Communications FTI Consulting Canada Air Canada Toronto Stock Exchange Montreal Gazette Calgary Herald Edmonton Journal BCV Asset Management Ten Network Holdings Stelco Algoma Steel AbitibiBowater

Geographic location: TORONTO, United States, Ontario Vancouver Montreal London, Ont. Winnipeg Canada New Republic

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