CanWest has lost two-thirds of its value in just two months. One share can be had for less than a dollar. Debt is seen as a $3.6-billion albatross around CanWest's neck, but a company spokesman says it still produces solid results every quarter.
Analysts say Canwest, whose shares were trading as a high $15 in 2005, has been particularly hard hit by the ongoing credit crisis after borrowing heavily over the years to build an impressive stable of media assets that include the Global Television Network, the National Post newspaper and daily newspapers in major markets across Canada. Canwest also has media holdings in New Zealand, Australia, Turkey, Indonesia, Singapore, the United Kingdom and the United States.
Analysts say CEO Leonard Asper is now facing the unenviable task of navigating Canwest through a looming economic recession – a time when advertisers are expected to dial back their spending – with $3.6 billion worth of debt strapped to the company's balance sheet, which could prompt the board to consider selling assets into an unfavourable market.
"Canwest is highly levered with little financial flexibility," wrote Scott Cuthbertson, an analyst at TD Newcrest, in a recent research note. "While it does not have significant (debt) maturities in the short term, it is arguably ill prepared to weather a prolonged economic slowdown and may find it expensive to obtain the flexibility it needs in the short term."
Bond rating agency DBRS said yesterday that it was putting Canwest Media Inc.'s debt ratings under review for a possible downgrade, citing a Canadian advertising market that has "weakened substantially." DBRS said it was "likely" the situation could have a material impact on Canwest's advertising-dependent conventional television business and could put pressure on the company's debt covenants.
Similarly, Moody's Investors Service on Thursday also put the long-term debt ratings associated with Canwest companies under review.
"Moody's also believes it is more likely that Canwest will have to sell assets in order to address 2010/2011 refinancing milestones related to last year's acquisition of the former Alliance Atlantis' specialty television operations, and that the related divestiture proceeds will be below earlier expectations."
John Douglas, a Canwest spokesperson, declined to comment on the company's prospects or the possibility of asset sales, citing a pre-earnings blackout period. But he did say Canwest is confident it can manage its debt obligations.
"If you look at the history of Canwest, for decades people have said that, from time to time, we have too much debt," said Douglas. "And every time we've proven them wrong. And we've done it not by finding a silver bullet, but by producing quarterly results."