TORONTO – While saying the business environment and financial performance of companies across Canada are likely to be adversely affected by the ongoing recession and the relative scarcity of financing, advertising-sensitive companies in the newspaper and television broadcasting sectors are likely to be most affected, according to Moody’s Investors Service.
"The recession will adversely affect advertising revenues and EBITDA will decline," said Moody’s vice-president – senior credit officer Bill Wolfe, "and this temporal matter may have lasting implications for these two struggling sectors."
While telecommunications and cable companies are unlikely to experience revenue or cash flow declines and their growth rates are likely to slow to zero, “companies with aggressive financial leverage are likely to be the most vulnerable," says Wolfe, whose report referenced Canwest Global as the most at-risk because of potential financial covenant compliance issues and refinance milestones relating to its transaction with Goldman Sachs, where the company purchased the former Alliance Atlantis specialty channels.
“(A)nd given the unprecedented global business environment, the general economic forces will trump those that are sector-specific. Issues specific to wireless, cable, broadcast or publishing are secondary."
Liquidity and access to capital are key from a ratings perspective, explained Wolfe. "Depending on the depth, scope and duration of the current circumstances, there may be lasting changes to the business landscape as well as to the credit ratings."
Plus, while liquidity has always been an important rating consideration for companies, heightened scrutiny is warranted in the current environment, says Moody’s, since liquidity is likely to be a scarcer resource than it has been over the last several years, says the report, entitled “Canadian Telecommunications, Media and Technology Companies – Winter 2009 Briefing.”
As well, noted Wolfe, while stronger companies like Telus, BCE and Shaw also have refinancing issues to manage, “no difficulties are expected given their stature and credit quality.”
