For as long as Leonard Asper has been at the helm of CanWest Global Communications Corp., the media company has been dogged by questions about its debt - a criticism he often confronted by insisting defiantly the matter was under control.
But as CanWest sought court protection from its creditors Tuesday, the chief executive officer of Canada's largest media company was forced to acknowledge that the $4-billion debt CanWest has amassed over the past decade was a financial hole too deep to emerge from.
The filing marked the conclusion of more than two years of wrangling between Mr. Asper and the Bay Street analysts following CanWest, who often raised concerns about the perils of such a debt load should the economy start to slow.
CanWest never heeded those warnings. When the economy began to falter last year, gutting the advertising revenues CanWest and other media companies rely upon for their survival, the company simply couldn't keep up with interest payments to bondholders.
CanWest is the most dependent of any broadcaster and newspaper organization in Canada on advertising dollars, with 77 per cent of its revenue coming from ad sales. When those customers tightened their budgets, the leverage Mr. Asper had for so long insisted was manageable became the company's undoing.
Though all media companies have been confronted by the same forces in the past year, CanWest was the worst-case scenario, analysts suggest.
"CanWest was too highly leveraged, too advertising focused, and then you have the economy" said Chris Diceman, an analyst with bond rating agency DBRS. "This was a company that was not properly capitalized for a downturn."
Mr. Asper, who took over as CEO of CanWest in 1999, inheriting the reins from his father Izzy, acknowledged Tuesday that the recession has been deeper and much worse than he expected.
Mr. Diceman noted that since taking over from Izzy, who died in 2003, Leonard Asper had never seen a downturn, and the company appeared ill equipped for one.
Dominion and other debt rating agencies began to raise concerns last November, when CanWest began tripping its lending covenants with banks. This was greeted with a rebuke by Mr. Asper, who said the company was managing the situation and striking deals with its lenders for breathing room.
Much of the debt was amassed through Izzy Asper's $3.5-billion purchase in 2000 of the Hollinger Inc. newspaper chain, and the subsequent $2.3-billion buyout of Alliance Atlantis Communications Inc. in 2007, which Leonard engineered.
Though Leonard Asper always bristled at the debt criticisms, he admitted Tuesday the leverage weighed upon the company.
"Because we've had debt for so many years, it's been the story for CanWest," Mr. Asper said. "I think [seeking creditor protection]in many ways is the beginning of something new and the right thing for the company to start with a fresh balance sheet."
CanWest filed for court protection from creditors for its holding company CanWest Media Inc., which includes the National Post newspaper, the Global Television network, and several cable channels the company owns.
The stable of profitable cable channels CanWest purchased with Goldman Sachs in the Alliance Atlantis deal are not part of the filing. The company's newspaper division, CanWest LP, is also not part of this filing, but is expected to seek protection from creditors in the coming weeks as well, once terms are worked out with its senior lenders. CanWest LP includes newspapers such as the Montreal Gazette, Ottawa Citizen, Calgary Herald and Vancouver Sun.
Several media companies are now dealing with high debt loads, including CanWest's primary competitor CTVglobemedia Inc., which is carrying just under $2-billion on its books and has been jettisoning small assets to pay that down and stay within lending agreements. CTVglobemedia owns CTV and is also the parent company of The Globe and Mail.
Despite the broader industry landscape though, analysts question whether CanWest did enough to shore up its business.
In the wake of the Hollinger deal, CanWest was carrying $3.8-billion of debt, a hefty sum for a company of its size, but the management team believed those interest payments could be maintained as long as revenue stayed strong.
Over the next two years, CanWest paid down half a billion dollars of that figure. The debt was reduced even further to $3-billion, helped in part by CanWest selling a quarter of the newspaper division as an income trust, raising about $500-million.
However, even at $3-billion, the debt raised concerns on Bay Street as far back as 2006, and calls emerged for the company to sell large assets to raise cash. Instead of divesting its Australian TV network, a solution analysts favoured, CanWest held on to that business and later spent several hundred million dollars to buy back the newspaper income trust in Canada. Those moves did not help the books.
By 2007, in the wake of the Alliance Atlantis deal, for which CanWest had to rely upon Goldman Sachs to provide most of the financing, the company's debt was back up to $3.8-billion. By this spring, when CanWest could no longer meet some of its lending requirements and the economy was turning sour, that figure had climbed above $3.9-billion.
"If we look over this in history, what you have is a cyclical media company, well diversified in different forms of media, but they hadn't seen a real downturn in the economy," Mr. Diceman said. "Management that took over continued on Izzy's expansion strategy and weren't focused on paying down debt and getting this company properly capitalized."