Only two years ago, Goldman Sachs Group Inc. was the financial saviour for CanWest Global Communications Corp., putting up most of the money for the Canadian company's $2.3-billion buyout of Alliance Atlantis Communications Inc.
But the New York investment bank has gone from being CanWest's closest partner to its biggest agitator as the company tries to restructure its debt under court protection from creditors.
On the first day of hearings in the Ontario Superior Court Wednesday to discuss the financial restructuring, lawyers for Goldman Sachs warned that they would take legal action against CanWest if it tried to change the terms of the Alliance Atlantis deal.
The bank expects to reap hundreds of millions of dollars. "If there is any attempt to disclaim it, there will be opposition to that - and litigation," said lawyer Kevin McElcheran, who is representing the bank.
Goldman's salvo is the first public sign of a rift between the bank and CanWest, which has spent months working on a prepackaged filing under the Companies' Creditors Arrangement Act, hoping for a swift restructuring.
In prepackaged CCAA filings, companies arrive in court having already obtained support from their biggest creditors. In CanWest's case, lawyers representing the firm's bondholders said they support the plan.
Soon after, however, Mr. McElcheran told Madam Justice Sarah Pepall that Goldman Sachs could not support the expedited timeline. Though Goldman is not a creditor in the process, it has claim over the 131 specialty TV channels purchased in the Alliance Atlantis takeover.
These include HGTV, The Food Network and Showcase. Mr. McElcheran is concerned CanWest will use the court restructuring to try to negotiate new terms.
Goldman Sachs stands to profit handsomely from its arrangement with CanWest. It put up two-thirds of the funding for the takeover, and its deal requires CanWest to buy out Goldman's stake in 2011. The price of that stake depends on how well CanWest operates the TV assets, along with its Global TV network.
But the recession has caused the performance of those assets to erode and the purchase price for CanWest is now estimated to be a few hundred million more than originally forecast, by some analysts' projections.
If the Canadian company can't pay the tab, Goldman can sell its stake to the highest bidder. The 13 specialty channels are the most sought after of CanWest's assets.
Goldman Sachs argued to the court that those channels are not part of CanWest's CCAA filing. CanWest has asked for court protection to restructure the debt of its holding company, CanWest Media Inc., which includes Global TV and the National Post newspaper.
CanWest's newspaper unit, CanWest LP, is not included in the filing for creditor protection. However, it is expected that that division, which owns daily newspapers across Canada, will file for protection in the coming weeks.
The country's largest media company was carrying a debt approaching $4-billion this year when a downturn in the economy caused a drop in advertising revenue that made that debt unserviceable.
Lyndon Barnes, a lawyer representing CanWest in the restructuring, told the court that CanWest wants to pursue an "aggressive" restructuring schedule to have an agreement in place by Jan. 30.
Concerned about rushing the process, Goldman asked for its deal to be "carved out" of the restructuring. Judge Pepall said she would approve the CanWest time frame CanWest proposed but denied the Goldman request. "In my view it would be inappropriate to grant such a carve-out at this stage," Judge Pepall said, adding that Goldman could come back to the court at a later date if it had concerns with the Alliance deal being threatened.
The talks come as CanWest is looking for new investors, and has tasked RBC Dominion Securities Inc. to begin shopping a $50-million stake in the restructured company.The process will see investment bankers contacting a list of investors who may want to participate in a recapitalization. However, while the list is said to include both Canadian media players and private investors, there are no obvious buyers looking to invest.
Several large players in the media market, including Astral Media Inc. and Corus Entertainment Inc., are only interested in the 13 specialty channels involved in the Goldman deal, and not Global TV. Meanwhile, other big players such as Rogers would not be allowed to invest in CanWest due to ownership rules, since it already owns a conventional TV network
Grant Robertson