The country's largest chain of big-city daily newspapers is soon to be run by a group of its creditors, led by Bank of Nova Scotia.
The dozen daily papers of CanWest Global Communications Corp. are held in the media company's CanWest LP subsidiary, which is in restructuring talks with lenders led by Scotiabank. These negotiations continue in the wake of the parent company's move on Tuesday to file for bankruptcy protection, with creditors agreeing to swap their debt for equity.
CanWest LP's lenders are owed a total of $1.3-billion, and sources involved in the talks say the newspaper unit is expected to set out its own debt-for-equity swap in coming weeks, which will include another court filing for creditor protection.
The creditor group is not expected to hold onto the newspapers.
The chain of dailies could be taken public as a national print media play in 2010, according to sources at both Scotiabank and CanWest LP.
Scotiabank and the other creditors are now taking greater control over the newspaper unit as the role of the controlling Asper family recedes.
Scotiabank has historically backed the Asper family; the bank's chief executive officer, Rick Waugh, has close personal ties to CanWest chief executive officer Leonard Asper and was also a confidant of Mr. Asper's late father, Israel (Izzy) Asper.
"We expect the newspaper group will be recapitalized independently of the television group, and the assets will be sold," BMO Nesbitt Burns analyst Tim Casey said yesterday in a research report.
But he added: "We don't expect any existing newspaper publishers in Canada will bid for the entire portfolio."
The CanWest collection of papers has its roots in venerable Southam Inc., which was acquired by press baron Conrad Black in 1996 and sold to Izzy Asper four years later. The larger-than-life personalities have long since left the stage.
The best way to preserve the value and revenue of CanWest LP is to keep the papers together as a national chain, according to the sources at Scotiabank and CanWest LP. The alternative would be busting up CanWest LP, which is also home to 26 community papers, and attempting to sell each property to regional publishers in the midst of a recession.
"There's a value to being able to deliver a national, one-stop advertising presence to national advertisers like Coca-Cola or the car companies, and creditors recognize that value," said one adviser to CanWest LP.
That business logic is expected to see ownership of the National Post newspaper, currently held by parent CanWest Global, transferred into CanWest LP to give the chain a newspaper in Toronto. The newspaper company has also cut costs by combining operations at its various papers, and those synergies could be lost if the chain is broken up.
Sources say creditors are willing to back the newspapers through an expected economic rebound, with an eye toward getting their loans paid back through an initial public offering of CanWest LP that could come late in 2010.
While they are willing to hold tight at CanWest LP, creditors are also attempting to attract what's known as a stalking horse bidder for the whole chain, as part of the coming restructuring. Stalking horse bidders step up in court-supervised recapitalizations with a firm offer that sets a floor price for a company. Other bidders are then free to make a better bid.
Private equity funds and banks have shown an interest in backing a management buyout of the papers, led by National Post chief executive officer Paul Godfrey. Sources say this group is the leading contender candidate for the stalking horse role. But sources at Scotiabank say the most likely outcome is that creditors will take over the national newspaper chain and run the company.
Scotiabank and other senior lenders expect to ultimately recover all of the money they have lent to CanWest LP, sources say. The newspaper company owes $874-million on a senior secured credit facility, and another $503-million to unsecured creditors and note holders. In the first nine months of this year, CanWest LP's revenue was down by 14 per cent compared with the same period the previous year, at $861-million, largely on weak advertising sales.
Restructuring expert Gary Colter, president of consulting firm CRS Inc. and former vice-chairman at KPMG, was recently hired by creditors of the newspaper unit to supervise its restructuring. Hap Stephen, another veteran of corporate salvage operations, is playing the same role for lenders to the parent company, which directly owns television networks, and Mr. Stephen's firm is being paid $150,000 a month for its services.
Private equity funds are also being pitched on ownership in parent CanWest Global Communications, which announced on Tuesday that it is looking for a $65-million equity investment as part of its planned restructuring.
To attract new investors to CanWest Global Communications, the company's creditors want to rework a deal with Goldman Sachs & Co. struck in 2007. That arrangement saw the New York-based investment bank backstop the company's acquisition of 13 specialty television channels at Alliance Atlantis Communications.
Goldman Sachs sees no reason to revisit its arrangements, which have been blessed by Canadian regulators, according to several sources close to the investment dealer.
These channels are CanWest's crown jewels. The unit's profit rose 41 per cent to $53-million in the most recent quarter, compared with the previous year. The CW Media division was not included in Tuesday's bankruptcy filing.
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