TORONTO – Barring an epic economic turnaround, CanWest Global is unlikely to continue in its current form, according to a report to investors by BMO Capital Markets media analyst Tim Casey, after analyzing the TV and publishing company’s second quarter results.
“CanWest is faced with several near-term liquidity challenges. The company did not make its scheduled March 15 interest payment of approximately US$30 million to senior subordinated note holders. Failure to make the interest payments by April 14 could result in note holders demanding the immediate repayment of US$761 million in principal outstanding,” notes Casey’s report.
“The company is currently in negotiations with an ad hoc committee of note holders in order to extend the deadline in order to pursue a recapitalization transaction.
“Senior lenders recently agreed to extend the waiver on debt covenants that are currently in breach until April 21, 2009. Furthermore, the lenders have agreed to provide additional access to credit during that time,” he writes.
But even with all that, there’s no staving off the inevitable – a worsening ad market, coupled with massive debt ($4 billion or so).
“Based on these major liquidity challenges, it seems unlikely to us that CanWest can continue in its current form. Moreover, timely and successfully asset sales of conventional television or publishing assets seems equally unlikely,” writes Casey.
Overall TV revenues are not too that bad, all things considered, as they were flat in the second quarter, at $234 million, with EBITDA (earnings before interest, taxes, depreciation and amortization) improving by 60% compared to Q2 2008, to $32 million.
“The conventional television advertising market remains weak amid a continued deterioration in the macro-economic environment. Advertising revenues declined 4% (down 6% year to date) versus the same period last year. Although not inspiring, the decline in conventional advertising revenues has held in better than expected, as the industry has contracted 9% year to date,” explained Casey.
Ad sales on its specialty channels actually rose in the quarter, too, which compares favourably to Astral and Corus specialties, which saw decreases, year-over-year.
As well, the company has taken large hits in its Australian (Network Ten) operations and its newspaper publishing where revenues, EBITDA and margins all slid precipitously.
“Given the significant liquidity challenges facing the company, we see no residual value in the shares of CanWest,” added Casey’s report.
– Greg O’Brien
