Timing poor as Canwest ratings cut

Media group entering crunch talks on new borrowing terms

TORONTO -- Dominion Bond Rating Services on Monday slashed the ratings of two key debt issuers at Canwest Global Communications Corp., the country's largest media group, just as it enters crunch talks with its senior lenders on new borrowing terms.

DBRS cut the rating on Canwest Media from B-high to CCC, below investment-grade, while the broadcaster and newspaper publisher saw the rating on Canwest Lp. sliced from BB-low to CCC.

The ratings agency said Canwest Global is likely already in breach of its bank covenants regarding a CAN$300 million ($240 million) credit facility that the media group has until Friday to renegotiate (HR 2/20).

"Should the terms of this (CAN$300 million) facility not be successfully renegotiated or some other solution be implemented in the near term to repay the nearly $100 million drawn under this facility, Canwest Media would be in a default position," DBRS warned.

Parallel with the debt refinancing talks, Canwest Global also is shopping assets to rivals to raise much-needed cash to service a growing CAN$3.9 billion ($3.1 billion) debt load.

Those assets are understood to include five E!-branded over-the-air TV stations and possibly 13 cable channels that Canwest Global operates in partnership with Goldman Sachs & Co.

But DBRS said it did not believe that cost-cutting and limited asset sales will be enough to stem mounting Canwest Global's debt woes.

"While DBRS notes that Canwest Media has implemented some cost-cutting initiatives at its TV operations and at Canwest Lp.'s newspaper operations and recently announced plans to sell its second-tier conventional TV channels, these factors are not likely great enough to offset the company's operating pressure and put Canwest Media onside with its debt covenants," the rating agency said.

The Canadian broadcaster also has expressed reluctance to shop its controlling stake in Australia's Network Ten, which has long provided key cash flow to Canwest Global.