Corus Entertainment’s corporate head office in Toronto on Sept. 9.Fred Lum/The Globe and Mail
There’s a déjà vu experience playing out at Corus Entertainment Inc. as lenders to the media company, one of the country’s largest, try to fix its broken balance sheet.
Many of Bay Street’s top restructuring experts working on a debt-for-equity swap that will restructure $1.1-billion in debt at the radio and TV station owner are wrestling with financial problems at these properties for the second or third time in two decades.
Many of these investment bankers and lawyers advised on the 2009 bankruptcy of Canwest Global Communications Corp. and the sale of its broadcasting business to Shaw Communications Inc. the following year.
In this instalment of a long-running series, advisers to creditors and the Corus board are negotiating a deal to exchange $750-million of bonds for new shares that represent a majority equity stake in the company, currently controlled by Calgary’s Shaw family, along with a significantly smaller amount of debt.
Corus executives want to trim interest payments and the overall size of their corporate loans to generate cash for programming, as the company pivots from traditional broadcasting to digital media.
On Wednesday, Bloomberg reported Corus’s goal is to emerge from the restructuring with a $500-million enterprise value, representing its debt plus equity.
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Corus bonds, due in 2028 and 2030, trade for 30 cents on the dollar and the company disclosed last year it is in talks with lenders. The prospect of a restructuring that dilutes existing shareholders has weighed heavily on the share price.
The company’s stock has plunged more than 99 per cent since 2016, when Corus took on debt to acquire Global and other TV properties from Shaw Communications for $2.65-billion.
On Thursday, Corus shares closed at 9.5 cents on the Toronto Stock Exchange and the company’s equity market capitalization was just $17.7-million.
The central player in the restructuring drama is Canso Investment Counsel Ltd., one of the country’s largest bond fund managers, with $62-billion in client assets. Canso owns roughly 6 per cent of Corus bonds that mature in 2028, according to regulatory filings, and is leading a creditor group that is negotiating with the company.
Canso is pushing for a transaction that would hand bondholders a significant amount of Corus stock in the near future, according to two sources involved in the process. Other bondholders are willing to be more patient, as Corus generates enough cash to make its interest payments. The sources said some bond funds have restrictions on holding equity.
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The Globe and Mail is not naming the sources because they are not authorized to speak publicly about the talks. Canso, Corus, and the investment banks and law firms working on the restructuring declined to comment on the process.
Canso previously bankrolled Postmedia Network Canada Corp., also spun out of Canwest following the 2009 bankruptcy. After taking part in a series of restructurings, Canso recovered 100 cents on the dollar of its Postmedia loans.
Corus’s legal advisers at Osler, Hoskin & Harcourt LLP, led by restructuring specialist Tracy Sandler, previously guided Canwest through bankruptcy. The company’s investment bank, Jefferies Financial Group, is staffed by veterans of Royal Bank of Canada and Barclays who worked on virtually every major media deal
Across the table, Bennett Jones LLP lawyers, including partner Kris Hanc, are working for Corus’s bondholders. Mr. Hanc, co-head of the firm’s capital markets group, went to court in 2016 as the lawyer for fund manager Catalyst Capital Group Inc. in an unsuccessful attempt to block Shaw Communications’ sale of its broadcast assets to Corus, the deal that saddled the buyer with debt.
Canaccord Genuity Corp., the creditors’ investment bank, previously advised on the takeovers that built Canwest.
2024: Corus bondholders, facing steep losses on loans, fight for control of media company
Analysts say Corus needs to win larger audiences to its programs, cut costs and get additional support from regulators to rebuild its stock price. In a report, analyst Drew McReynolds at RBC Capital Markets said: “Until more progress is demonstrated on each of these fronts and a more sustainable capital structure is instituted, we expect equity value to be under considerable pressure.”
In January, bond rater S&P Global Ratings downgraded Corus’s credit rating on concerns the company would run out of extra cash over the next six to nine months.
A few months later, the company announced the retirement of long-time executive chair Heather Shaw, and in July, the company’s co-chief executive officer Troy Reeb also stepped down, leaving John Gossling alone at the helm as solo CEO and interim chief financial officer.
In its third quarter ended May 31, Corus reported revenue of about $300-million, down from $330-million a year ago. It had a segment profit of $62-million, but a net loss attributable to shareholders of $7.3-million. Its free cash flow was negative $32-million.
Speaking to analysts during its last quarter, Mr. Gossling said that the company anticipates television advertising revenue to decline about 20 per cent year-over-year in the current quarter, citing “geopolitical and economic uncertainty.”
Corus said at the same time it was winding down five kids’ channels after a review of its portfolio, citing evolving audience needs.
Last summer, the company lost its brand and content licensing rights to Warner Bros. Discovery’s suite of brands, including HGTV and The Food Network, to Rogers Communications Inc. Rogers started broadcasting these channels in January.