Canwest shares worthless, analysts say

Canadian media firm faces Tuesday debt deadline

TORONTO -- Shares of Canwest Global Communications are essentially worthless and should be avoided by investors as Canada's biggest media company fights to restructure its massive debt amid a severe advertising downturn, analysts said Monday.

Canwest has another debt deadline Tuesday, by which time it must pay $30.4 million in interest to holders of its 8% senior subordinated notes. The payment was originally due March 15, but the company missed it.

If it doesn't pay Tuesday, the investors can demand the repayment of about $761 million of outstanding principal on the notes. This could further exacerbate the crisis facing the company.

"Given the significant liquidity challenges facing the company, we see no residual value in the shares of Canwest," BMO Capital Markets analyst Tim Casey wrote in a note to clients.

Canwest's shares fell 22% to close at 25 Canadian cents on the Toronto Stock Exchange -- a fresh year low for the stock.

Moody's Investors Service also said Monday that "it appears inevitable" the company will not make the interest payment "prior to the expiration of the applicable 30-day cure period."

While critical, the pending payment is only the tip of the iceberg for Winnipeg, Manitoba-based Canwest, which has a debtload of about CAN$3.7 billion ($3.03 billion), some of it dating back to its 2000 acquisition of newspaper assets from Hollinger International.

The company is in talks with both the noteholders and its banks to restructure its debtload and recapitalize its balance sheet. Meanwhile, lenders have clamped down on the amount of credit they are willing to advance to the company.

"Based on these major liquidity challenges, it seems unlikely to us that Canwest can continue in its current form," Casey wrote, adding that timely and successful asset sales also seem unlikely.

The recession continues to severely depress the advertising market, which is the lifeblood of Canwest's stable of newspapers and television stations. It has also dampened the appetites of potential buyers of Canwest's assets.

The company owns a chain of Canadian daily newspapers, including the flagship National Post, as well as Canada's Global television network. It also has television operations in Australia, through its stake in Network Ten.

Last week, Canwest posted a net loss of CAN$1.44 billion for the three months ended February 28. This included a CAN$1.19 billion writedown related mostly to its publishing operations.

"We see no compelling reason to own, let alone buy Canwest shares, which we would continue to avoid," National Bank Financial analyst Adam Shine wrote in a note.

Analysts have previously said that Canwest could file for bankruptcy protection, but the company thus far has continued to negotiate with creditors rather than involve the courts.

"We continue to believe there is significant risk Canwest is forced into bankruptcy protection or to sell assets at unfavorable prices or a massive debt restructuring," GMP Securities analyst Jason Jacobson wrote to clients.

"Either way, we believe Canwest equity value is very limited." His target price on the shares is zero.

A Canwest spokesman had no comment on the status of the creditor talks Monday.

Canwest is considering selling five conventional TV stations and has agreed to sell its stake in sports broadcaster Score Media. It has already sold the New Republic magazine in the United States to a group of private investors.

However, no large-scale asset sale that would make a significant dent in its debtload has materialized so far.

A big part of its debt dates back to the CAN$3.2 billion in deal with Hollinger International.

The acquisition made Canwest the country's biggest publisher of daily newspapers. It included 13 big-city dailies as well as 126 community newspapers, Internet assets and a 50% stake in the National Post. The company later bought full control of the Post.

In 2007, Canwest expanded its television holdings by partnering with an affiliate of U.S. investment bank Goldman Sachs to buy specialty TV group Alliance Atlantis Communications for CAN$2.3 billion.

Canwest is controlled by the Asper family of Winnipeg. In November, the firm cut 560 jobs at its newspapers and television stations to slash costs and cope with the advertising slowdown.
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