In a move that's bound to make bankers uneasy, DBRS scaled back estimates on what lenders can recover from CanWest Global Communications at the same time the credit rating agency downgraded the media company's debt.
DBRS knocked ratings on debts at a number of CanWest subsidiaries on Monday. One of the top levels of the conglomerate, CanWest Media, saw the rating on its notes slashed by four notches, to triple C from single B. DBRS dropped the rating on CanWest Media's secured bank debt to single B from double BB (high).
CanWest is renegotiating a $300-million credit facility, led by Bank of Nova Scotia, after the line was trimmed earlier this month to $112-million. There is a Feb. 27 deadline on waivers the banks granted on this line of credit. DBRS noted Monday: “Should the terms of this facility not be successfully renegotiated or some other solution be implemented in the near term to repay the nearly $100-million drawn under this facility, CanWest Media would be in a default position.”
Canwest executives are in the midst of a “strategic review” that features cost cutting and the possible sale of five conventional television station. But the credit rating agency warned Monday: “These factors are not likely great enough to offset the Company's operating pressure and put Canwest Media onside with its debt covenants.”
With that ominous warning, DBRS provided a new, more pessimistic take on what lenders might recover, should Canwest seek creditor protection. This sort of sentiment is bound to make negotiations with lenders that much more difficult for Canwest.
In a report published in early December, DRBS said banks could expect to recover well over 100 cents on the dollar if Canwest Media defaulted, based on the value of the underlying assets.
After Monday's downgrade, the prediction is the banks get paid back 90 cents to $1 for each dollar they have outstanding on the $300-million CanWest Media bank facility, if the company files for bankruptcy. Holders of CanWest Media's senior subordinated notes can recovery 10 cent to 30 cents on the dollar. Previously, the forecast on this level of debt was 17 to 31 cents.
Bank loans to subsidiary CanWest LP are expected to experience recovery rates of 50 to 70 cents on the dollar, according to DBRS. Further down the credit ladder, investors who own Canwest LP's senior subordinated notes would be paid back pennies on the dollar: The best case scenario is recovery of 10 cents on the dollar, according to DBRS's calculations.
