TORONTO – Citing serious debt concerns, Dominion Bond Rating Service placed its ratings of CanWest MediaWorks "under review with negative implications" yesterday,
"(D)ue to weakness in more of the company’s operating segments, which may lead to a breach in the company’s financial covenants under its senior secured bank facilities in the upcoming quarter and year-end (August 31, 2006)," the ratings service said CanWest’s BB rating may not hold.
DBRS is concerned CanWest could default on certain of its bank covenants by as early as the end of its fiscal year, August 31, 2006, but believes the company will be able to get some kind of amendment to its agreements prior to anything happening. It also noted that the sale of its Irish assets will help the debt load.
"CanWest’s Canadian television operations have been under pressure from weak viewership for some time; however, relatively strong international operations in Australia, together with debt repayments, were sufficient to hold the rating at BB," says the release.
However, as has been documented, "recently, CanWest’s EBITDA has come under pressure due to a combination of factors, including weakness in the Australian advertising market, strengthening of the Canadian dollar and continued ratings weakness in the Canadian television market. Weakness in more then one main operating segment will impact the company’s ability to reduce debt in the near term," DBRS added.
"Moreover, this has put pressure on the company’s bank covenants, which could lead to a default for their next reporting period, based on August 31, 2006 financials. DBRS believes CanWest should be able to obtain an amendment or waiver. However, DBRS notes that CanWest is expected to use proceeds from the sale of its Irish television assets to reduce debt in the range of $200 million. This should alleviate some of the short-term pressure on the financial covenants.
"The ratings will remain under review until DBRS is satisfied that CanWest will not violate its credit agreement, be it through stabilized operations or an amendment/waiver from the banks," concluded the release.
