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The headquarters of the National Post in Toronto.Frank Gunn

An Ontario judge has approved a proposal by CanWest Global Communications Corp. to shift its flagship National Post newspaper to a subsidiary that contains the company's other newsprint assets, such as the Vancouver Sun and Ottawa Citizen.

In court documents filed this week, CanWest said it would have to close the newspaper if the asset shuffle weren't allowed since creditors at the parent company, which owns Global Television, didn't want to cover further financial losses at the paper. Creditors at the newspaper subsidiary agreed to move the National Post into the sub-company.

Sources close to the restructuring said there was little doubt the move would take place since all major creditors agreed in advance to the proposal and there were no legal objections. However, the shift has broader implications for the company.

Before the shuffle, the National Post was part of CanWest Media Inc., which filed for court protection from creditors three weeks ago. CanWest Media is the holding company for the operating assets of CanWest Global.

CanWest is moving the Post into its newspaper subsidiary, CanWest LP, to group all of the company's print assets together in advance of a separate filing for court protection for that business.

It is expected the newspaper subsidiary, which owns about a dozen papers across the country, will file for protection under the Companies' Creditors Arrangement Act (CCAA) in the coming weeks. That could lead to the company being split up as part of the restructuring.

A lawyer for CanWest said Friday that the National Post has never turned a profit and the creditors of the parent company, a group of hedge funds that own most of the company's bonds, don't want to continue covering its losses.

"If the bondholders on the [parent company]side thought they could squeeze one more nickel out of it, they would have," CanWest lawyer Lyndon Barnes said. "There is just no money to continue beyond today."

However, Mr. Barnes said the paper does have value to the other papers in the CanWest chain if grouped with those print assets.

The newspapers have numerous shared services contracts among them, which result in cost savings for the print subsidiary.

The main creditor for the newspaper group, Bank of Nova Scotia, backed the transfer, Mr. Barnes said.

A lawyer for the independent monitor appointed to oversee CanWest's financial restructuring under the CCAA process said its own study concluded that a shutdown and liquidation of the National Post assets would likely result in a cost to CanWest's restructuring rather than a gain, because of numerous severance agreements and legal costs. As well, RBC Dominion Securities conducted a recent sale of the Post, the lawyers said, and there were no offers from interested buyers.

After hearing arguments, Madam Justice Sarah Pepall agreed to the proposal, permitting the move Friday.

The grouping of CanWest's newspaper and broadcast assets into two separate operations will likely result in the print and TV company eventually being broken up along those lines, potentially with separate owners.

CanWest is trying to restructure a debt that was approaching $4-billion earlier this year. The debt became unmanageable amid a recession that has sapped media companies of advertising revenue.

CanWest relies on advertisers for 77 per cent of its revenue, one of the heavier weightings in this regard on the Canadian media landscape.

The company is hoping to complete the restructuring by the end of January.

The National Post employs 277 people. It lost $9.3-million last year, according to court documents. It is now indebted to parent company CanWest Media for $139-million.

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