MEDIA REPORTER
CanWest Global Communications Corp.'s efforts to restructure its debt have come up against a series of glitches in the past few weeks that are delaying a deal with bondholders.
At the top of that list may be the most unlikely of culprits - a television show called MasterChef Australia.
The popular cooking program has been a major hit on Australian television this year, peaking at 4.1 million viewers, and is one of several shows causing CanWest's Australian TV network, TEN, to steal audience share from its rivals.
That has translated into gains on the Australian stock market.
Shares in TEN have nearly doubled since February, bringing the value of CanWest's 50.1-per-cent stake to about $600-million, as analysts predict the network could be well positioned if the economy improves.
With the network's value suddenly on the rise, CanWest and its biggest creditors have been forced to divide their attention between a debt-for-equity swap and the potential sale of TEN.
Earlier this year, it appeared as though the company had put the idea of selling the asset on hold, not wanting to dump the half-stake at a severely depressed price.
While the money is a far cry from the $1-billion the Canadian media company thought it could fetch a few years ago, those involved in the restructuring know that they must give a sale serious consideration now.
The stake in TEN is arguably CanWest's most valuable, and most liquid asset. Though the company has sold smaller assets, including its stake in Canadian sports channel The Score, the impact has been small.
While a sale could generate $600-million in cash, it would also allow CanWest to remove its share of TEN's debt from its books. In that sense, the total impact could be more than $1-billion, Morgan Stanley analyst Andrew McLeod said in a research note.
CanWest's restructuring is being negotiated with a series of bondholders who own most of the company's debt. The process could include filing for protection under the Companies' Creditors Arrangement Act. The parties expected to have an agreement on a restructuring plan in place this month, and have missed several self-imposed deadlines over the summer as talks continue.
But the Australian situation is not the only complicating factor in the talks. A host of other issues have bogged down the process as well, including an unexpected tax issue that has thrown a wrench into the restructuring.
The restructuring is being led by three firms, including Toronto-based West Face Capital Inc., a distressed-debt fund skilled in fixing troubled companies. However, the group of bondholders also includes two U.S. vulture funds, GoldenTree Asset Management and Beach Point Capital Management.
With much of its bonds held by these U.S. players, CanWest has learned it may run into problems if it swaps debt for equity in a restructured company and too much of the company is owned by the U.S. bondholders. Aside from the foreign ownership restrictions on Canadian broadcasters, the move could result in CanWest losing a key tax advantage.
Under Canadian laws designed to discourage advertisers from buying commercial time on U.S. border stations in order to reach a local audience, advertising bought on Canadian networks can be used as a business expense on taxable income. A 2006 study by consultancy Nordicity Group Ltd. determined the tax benefits from this provision are worth between $93-million and $132-million to the broadcasting sector.
Though such issues are not insurmountable, they have slowed down talks, since each matter must be dealt with before the restructuring can be agreed upon.
Any restructuring of CanWest must also satisfy federal ownership rules, and the company has already signalled to the Canadian Radio-television and Telecommunications Commission that it will need to discuss a potential ownership change. The meetings were expected to take place in early September, but have now likely been pushed back.