DBRS Comments on Canwest’s Restructuring Plan, Creditor Protection and Comprehensive Sale

DBRS notes today that Canwest Limited Partnership (Canwest LP or the Company), a wholly owned subsidiary of Canwest Media Inc. (Canwest Media), has entered into an agreement with its senior secured creditors to pursue a prepackaged restructuring plan. DBRS’s current ratings on Canwest LP were downgraded to D on September 2, 2009.

As a result of either a sale or the execution of the restructuring plan, which could lead to a re-listing and an IPO, DBRS expects the creditors to ultimately get cash proceeds; however, these proceeds may not cover all of the creditors’ claims. (DBRS notes that Canwest LP’s total debt of $1.45 billion at August 31, 2009, included $876 million of Secured Bank Debt, $438 million of Senior Subordinated Notes and $75 million subordinated bank debt, while its EBITDA was pressured significantly to more than 40% for the year ended August 31, 2009, or $180 million.)

As part of this process, Canwest LP and certain entities, including all of Canwest LP’s newspaper publishing, associated digital media and online and mobile operations, with the exception of National Post Inc. and its associated properties, will file for creditor protection under the Companies’ Creditors Arrangement Act (CCAA). DBRS notes that Canwest Media and some of its associated entities, including its conventional TV operations, some specialty channels and National Post Inc., filed for creditor protection on October 6, 2009. Subsequently, ownership of National Post Inc. was moved from Canwest Media to Canwest LP. DBRS notes that CW Media Inc. and certain other specialty TV operations are excluded from both CCAA filings.

Within the proposed restructuring plan, the Company has engaged an advisor to conduct a comprehensive sale and investor solicitation process to find offers that are better than the agreement reached as part of the prepackaged filing. DBRS notes that as part of the prepackaged filing, the secured creditors have made an offer to acquire all of Canwest LP’s businesses. This effectively sets a floor price for the investor solicitation/sale process.

DBRS downgraded the Issuer Rating, Secured Bank Debt and Senior Subordinated Notes ratings of Canwest LP to D on September 2, 2009. This was due to the Company’s failure to make a US$18.5 million interest payment on its Senior Subordinated Notes in August 2009 after a 30-day cure period and its failure to make principal and interest payments on its secured credit facility at that time. The downgrade of the Issuer Rating to D was also a result of the Company’s having indicated that it did not have adequate liquidity to satisfy the payments of its Secured Bank Debt, Senior Subordinated Notes or any associated hedging derivative instruments.

In January 2009, DBRS placed the ratings of Canwest LP Under Review with Negative Implications and subsequently downgraded the ratings three times – in February, March and May of 2009– with each downgraded rating again being placed it Under Review with Negative Implications.

Given Canwest LP’s restructuring plan and its CCAA filing , DBRS expects to withdraw its ratings of Canwest LP – and likely those of Canwest Media, which is pursuing its own recapitalization under CCAA protection – in due course.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Media and Entertainment, which can be found on our website under Methodologies.

This is a Corporate (Telecom/Media/Technology) rating.