Canwest creaks under debtload, may seek protection

By Wojtek Dabrowski - Analysis

TORONTO (Reuters) - Debt-laden Canwest Global Communications Corp CGS.TO, Canada's biggest media company, may face bankruptcy as the weak economy wreaks havoc on its stable of television stations and newspapers, and buyers for its assets fail to materialize.

Canwest, publisher of the National Post daily newspaper, has said it will try to exit non-core businesses and is considering the sale of five conventional TV stations. But analysts say there may not be any prospective purchasers waiting in the wings.

Even if the properties are sold, the proceeds would barely make a dent in Canwest's debtload of about C$3.7 billion ($2.96 billion).

"They're on the verge of bankruptcy," CIBC World Markets analyst Bob Bek said of the company. "The equity has been reflecting that for some time."

Shares of Winnipeg, Manitoba-based Canwest were changing hands at 49 Canadian cents each on the Toronto Stock Exchange. About a year ago, they were worth C$6.11 each.

"Indeed the signs seem ominous," Credit Suisse analyst Randal Rudniski wrote to clients last week.

"A Chapter 11 (bankruptcy protection) filing is certainly a possibility, although we think it's more likely that it seeks to find a remedy for its high debt leverage without court protection in order to preserve the current control structure."

Canwest is controlled by the Asper family of Winnipeg. It owns the Global television network and a chain of daily newspapers in Canada. It also has television holdings in Australia through its stake in Network TEN.

It announced plans to sell the Canadian TV stations just days after it revealed that the slumping economy could force a main subsidiary to breach debt covenants in the next several weeks.

Canwest also said earlier this month that its banks have capped the amount of money they are willing to lend to its Canwest Media unit.

Changes to the subsidiary's C$300 million senior credit facility mean that, until February 27, it can only borrow another C$20 million on top of the C$92 million that has already been advanced, Canwest said.

Meanwhile, advertising revenue has dropped steeply in recent months for media companies like Canwest, as corporations scale back marketing spending during the economic downturn.

Given the challenging economic climate, it's unlikely interested buyers for its Canadian TV stations will materialize, analysts say.

"We believe it will be very difficult for Canwest to effect a sale of these stations in the current economic environment," Cormark Securities analyst David McFadgen said in a recent note to clients.

"If Canwest does receive a bid for the assets, we believe it will not be significant."