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Robert Matza, left, president, and Goldentree founder Steve Shapiro. (neville elder/neville elder)
Robert Matza, left, president, and Goldentree founder Steve Shapiro. (neville elder/neville elder)

GoldenTree's bet on CanWest's papers Add to ...

For some investors, thinking about the wreckage in financial markets back in the spring of last year brings an involuntary shudder. For others who specialize in trolling for bargains, it's a source of nostalgia.

Steven Tananbaum, founder of GoldenTree Asset Management and a veteran of the world of risky debt, belongs in the second category. It was "just the most fun garage sale I've ever been a part of," he said at a conference in Los Angeles in April. "I really miss it."

As it turned out, one of the companies whose bonds were on sale was north of the border. It was weighed down with enormous debts but owned unique assets, including a group of prominent newspapers. For GoldenTree, the combination proved irresistible.

Now the little-known firm is at the centre of one of the highest-profile restructurings since the economic downturn in Canada. In a deal expected to close next month, GoldenTree and its fellow bondholders will become the new owners of the newspaper division of CanWest now in bankruptcy protection. Their $1.1-billion cash offer trumped a bid by Torstar Corp., putting a group of specialized investors in charge of 46 papers including the National Post, the Ottawa Citizen, and The Montreal Gazette.

By snapping up CanWest's bonds, New York-based GoldenTree was doing what it does best. Founded a decade ago, the firm scours the world of risky bonds for bargains. That means making hard-headed assessments of a company's value and its ability to pay its debts. Sometimes, GoldenTree swoops in on ailing companies, buying their beaten-down bonds ahead of a fight by creditors in court over assets.

The media industry has proven fertile terrain. Battered by the recession and the march of the Internet, once-vigorous newspaper and magazine companies have grown sickly. GoldenTree is an investor in a number of troubled media outlets, from household names like Reader's Digest to an obscure chain of Georgia newspapers. Like-minded investors are playing key roles in determining the future of storied papers such as The Philadelphia Inquirer and the Los Angeles Times.

Such bargain hunting proved to be a perilous endeavour when the financial crisis hit. Like other firms who focus on debt markets, GoldenTree faced a difficult path through the meltdown. In 2008, its flagship hedge fund lost 39 per cent of its value, according to an investor. Last year, however, it rebounded 70 per cent, recouping the losses, and is up about 14 per cent through the end of May.

Today the firm manages about $12-billion (U.S.), mostly in hedge funds, down from nearly $14-billion in the summer of 2008. During the crisis, its assets at one point dropped to $10-billion.

Each weekday, a few minutes before 9 a.m., an e-mail goes out to investment managers in GoldenTree's office high above Park Avenue. "We're rounding," it says, a signal for a few dozen people to crowd onto a small trading floor. There, Mr. Tananbaum, whose office opens onto the room, presides over a daily check of markets, assessing dangers and sharing opportunities.

Current and former employees say GoldenTree is a demanding place to work and describe Mr. Tananbaum as a hard-charging boss who is immersed in the firm's business 24 hours a day, seven days a week. The first thing that strikes a visitor to its office is the arresting assortment of contemporary art adorning the walls, some of it from Mr. Tananbaum's personal collection. Last year, he and his wife were tapped as one of the world's top 200 art collectors by the magazine ARTnews.

No Strangers to CanWest

In some ways, GoldenTree's leading role in the restructuring of CanWest has roots stretching back over a decade. Two of the firm's founding partners are former members of the high-yield bond team at CIBC World Markets - Leon Wagner, who headed sales and trading, and Steven Shapiro, who was the head of research for media and telecommunications.

During his time at CIBC in the mid-1990s, Mr. Shapiro got to know both the newspapers that would eventually be part of CanWest and key Canadian media executives, including Paul Godfrey, the former chief executive officer of Sun Media and the Toronto Blue Jays. The bondholders have tapped Mr. Godfrey to lead the turnaround of the newspaper unit.

Once he joined GoldenTree, Mr. Shapiro kept track of the newspapers and dipped into various debt issues by CanWest and its predecessors, including bonds issued in 2007. "We've known and financed these assets for quite a long time," he says.

The financial meltdown would provide a window to make a bolder bet on the CanWest papers. In late 2008 and early 2009, the prices of CanWest's bonds plunged dramatically as the crisis intensified and the recession struck the business. GoldenTree decided to buy more debt and prepare for a restructuring of the company.

By the middle of 2009, GoldenTree held the largest chunk of $450-million(Canadian) in outstanding bonds. It also bought some of CanWest's bank debt for a fraction of its face value. Such loans will be paid back in full under the current offer to take over the papers, delivering GoldenTree a tidy profit. Its bonds, meanwhile, will be converted into an equity ownership stake.

Despite the perils facing old-fashioned newspapers, GoldenTree is betting that an improving economy and a greater focus on digital media will allow CanWest's papers to regain some - though not all - of their prior health.

When GoldenTree exits the scene will depend on how quickly the papers perk up. Because of Canadian ownership rules, the newspaper unit will be publicly listed in the coming months, but Mr. Shapiro says he doesn't necessarily view the offering as a catalyst for GoldenTree to sell its stake.

"It's way too early" to think about an exit, he says. "There are opportunities to improve the operations and we're going to work closely with management on them," he says, adding that he doesn't think "you can cut your way to greatness in these businesses."

Meanwhile, each morning, GoldenTree's investment managers continue to search for bargains.

"The one thing that is clear is that there's going to be continued volatility across economies," says Mr. Shapiro. "We think there will be a lot of opportunities for a firm like ours."


Not all of GoldenTree's wagers in the media industry have paid off. In 2007, it joined private equity players to take over Reader's Digest Association. Two years later, the ailing magazine company filed for bankruptcy protection (while GoldenTree specializes in bonds, it also sometimes invests in equity, which in this case got wiped out). Despite that loss, it still picked up the firm's bank debt at cheap prices, which got converted into shares in the restructuring.

One person familiar with the firm says a similar persistence can be seen with CanWest, where GoldenTree originally bought its bonds at higher prices in 2007, not anticipating a bankruptcy filing.

Some worry that GoldenTree's type of investing could be vulnerable if credit markets seize up, the way they did during the financial crisis. Back then, rather than sell its securities into frozen markets at rock-bottom prices, GoldenTree prevented its investors from withdrawing their cash for a while, frustrating some.

Since the start of last year, all requests by investors to cash out have been met, the firm says.

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