The struggle by Canwest Global, the Canadian parent of the Ten Network, to stay alive is being threatened by a financial crisis gripping one of its two latest emergency funders, CIT Group, a $US75 billion US business finance group which is being refused American Government support for a much needed funding program.
CIT, a $US75 billion, 100 year old business, can’t get the support of America’s Federal Deposit Insurance Corporation to back a debt issue because the FDIC is not convinced of CIT’s financial longevity.
CIT, which lent Canwest $C75 million under a revolving finance facility in late May, needs to raise funds to avoid what the Fitch ratings group warns is possible default.
The problems come as Canwest reported a sizeable worsening in its financial performance on the third quarter on Friday.
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For the three months ended May 31, 2009, the Company reported a net loss of $C110 million — including a non-cash $C247 million impairment of goodwill in Canwest’s Publishing operations, interest rate and foreign currency swap losses of $C177 million and foreign exchange gains of $C368 million primarily related to the foreign currency gains associated with the US dollar debt that is no longer hedged. For the nine months ended May 31, 2009, the Company reported a net loss of $C1.58 billion.
Without those timely foreign exchange gains, the company would have lost close to $C500 million.
Quarterly revenue fell to $C727 million from $C846 million reported the year before, as all Canwest divisions saw their topline performances worsen. Notable was the Ten Network where sales and earnings fell very sharply, down 15% for sales in Australian dollar terms and 76% in earnings.
Canwest announced on June 30 that “the holders of the new 12% senior secured notes of CMI and Canwest Television Limited Partnership as well as CIT Business Credit Canada Inc., the provider of a senior secured revolving asset-based loan facility to CMI, have agreed to extend to July 17, 2009, the date by which CMI must reach an agreement in principle with members of the Ad Hoc Committee in respect of a recapitalization transaction, as well as certain other milestones that were to be achieved by June 30, 2009. The date by which CMI must enter into a definitive agreement in respect of a recapitalization transaction has been extended to July 31, 2009.
“CMI and the members of the Ad Hoc Committee have also entered into a further extension agreement and forbearance to July 17, 2009.”
It had revealed CIT’s involvement in its latest emergency funding in late May. CIT’s Canadian arm provided a $75 million revolving credit for Canwest.
Canwest needed the new money. It has run out of ready cash to keep going; can’t meet bond and interest payments and CIT was game enough to lend it a large chunk of $C175 billion to keep going, making payments to staff and put down deposits on 2009-10 TV season purchases from US producers in late May.
Some Canadian analysts reckon Canwest’s total debt bill, including the latest money, the new 12% notes and interest owed would easily top $C4 billion debt load.
Each time it extends its deadline, more interest is added to the unpaid bill and the company moves closer to bankruptcy.
On Friday it again said it was continuing negotiations with creditors, but warned the company may not be able to survive as a going concern if efforts fail.
“The Company believes a significant reduction in its debt is necessary to resolve its liquidity issues and to continue to operate,” the company said in a statement.
“Failure to complete an agreement in principle on a recapitalization transaction… could result in a demand to immediately repay all Canwest Media Inc. debt.”
A year ago Canwest was worth around $C2 billion two years ago and about $C600 million in early 2008. As of Friday it had a market value of $C24.8 million with its shares trading at 14 Canadian cents.