JOHN WOODS
The houses of Morgan are willing to buy what Canada's banks are selling, as CanWest's newspaper division gets a new lease of life courtesy of two iconic Wall Street banks.
J.P. Morgan and Morgan Stanley stepped up Monday with a new $700-million loan that will help unsecured creditors in CanWest buy the newspaper chain for $1.1-billion, according to court filings on Tuesday. J.P. Morgan is driving this deal, shouldering 70 per cent of the loans. There is also $250-million of new equity and what's known as mezzanine debt - loans that can be converted into equity - committed to this takeover.
As the U.S. banks take the stage, Canadian lenders are heading for the exits.
Senior lenders, led by Bank of Nova Scotia, have controlled CanWest since the company filed for creditor protection in January. These secured lenders, owed $925-million, are thrilled to be paid 100 cents on the dollar, and are not participating in the recapitalization of the chain.
Somewhere, tycoon J.P. Morgan is smiling.
CanWest's unsecured creditors, who are now calling the shots and will soon convert their debt into equity, are led by U.S. hedge fund GoldenTree Asset Management, a veteran player in restructurings. The new owners hope to make money on the back of rising advertising revenues, cost cutting and a renewed emphasis on digital media.
CanWest is expected to list on the Toronto Stock Exchange as early as July, and with a price tag of $1.1-billion this company will emerge from creditor protection at a valuation that is on par with rival North American media companies.
Canadian content in the new ownership group includes TD Asset Management and Invesco Trimark. Media companies such as CanWest must have domestic control.
Halbis Distressed Opportunities Master Fund, Alden Global Distressed Opportunities Fund, Firest Eagle Investment management, 1798 Relative Master Fund, Seneca Capital Investments and OZ CW Investments fill out the new ownership of venerable CanWest, which owns 11 big city daily papers, and a stable of weekly community publications.
CanWest is contemplating a dual share structure, with multiple votes for Canadian investors and single votes for foreign investors, as a way to finesse federal ownership rules, according to sources working on the restructuring.
The decision to seek a stock listing this summer is also meant to ensure CanWest is viewed as a Canadian company by regulators, as that status ensures favourable tax treatment for all-important advertisers. Sources working with the new owners said while hedge funds that own CanWest will likely sell down their positions over time, the money managers will not head for the exits the moment the company lists on the TSX.
Andrew Willis