Corus Entertainment’s corporate head office in Toronto. The company's proposed restructuring would involve exchanging $500-million in senior unsecured notes for equity in a new parent company.Fred Lum/The Globe and Mail
Corus Entertainment Inc. CJR-B-T has announced a proposed major recapitalization that would significantly reduce its debt and interest costs and allow it to maintain operations, while almost completely diluting existing shares.
The restructuring will involve exchanging $500-million in senior unsecured notes for equity in a new parent company, NewCo, that will own Corus. The note holders will own 99 per cent of the new company’s shares.
All existing Corus shares will be exchanged for shares in the new company collectively worth 1 per cent of the total equity.
The proposed recapitalization is the company’s latest effort to find a reprieve from its heavy debt load, as it attempts to rewire its operations and cope with the decline of its legacy television and radio advertising businesses.
Despite efforts by Corus executives to restructure the company by cutting staff and finding programming efficiencies, the company has continued to see its overall revenue and profit decline in recent quarters, a challenge facing the broadcast industry as a whole.
Corus lenders revisit a well-worn restructuring path
Corus shares dropped 15 per cent to 8.5 cents on the Toronto Stock Exchange in Monday morning trading, bringing the company’s market cap below $15-million.
The plan, under the Canada Business Corporations Act, was supported by holders of nearly three-quarters of its total $750-million in senior unsecured notes. All lenders under the senior credit facility and the Shaw Family Living Trust, which indirectly holds more than 80 per cent of class A voting shares, have also entered into agreements with the company to support the restructuring.
The restructuring is subject to various court, shareholder and Toronto Stock Exchange approvals.
“After conducting a robust and comprehensive review process with our external financial and legal advisers, the board concluded this recapitalization transaction represents the best available option for the company and its stakeholders at this time,” Mark Hollinger, the board’s independent lead director, said in a release Monday morning.
The company will now focus on finding attractive partnerships, transitioning its legacy business to digital products and finding additional efficiencies, Corus chief executive officer John Gossling added.
The proposed transaction, which had been long-awaited by analysts, will also involve the issuance of new debt with extended maturities and access to an increased line of credit, which the company said will allow it to gain a stronger financial foundation and continue to operate business as usual, with no expected impact to clients or employees.
In addition to reducing its debt and liabilities by $500-million, the restructuring will help the company save interest of up to $40-million a year. Corus said in a release it is also seeking to extend the maturity dates within the new debt structure.
If the deal is approved, Corus will apply to have the NewCo shares trade publicly on the Toronto Stock Exchange through a process called a substitution listing, and the company’s board of directors will be refreshed at closing to comprise, initially, five directors.
Royal Bank of Canada analyst Drew McReynolds said the company’s significant continuing structural and cyclical headwinds, combined with “a lack of timely regulatory support,” contributed to the expected recapitalization proposal.
“While we expect these headwinds to persist, the proposed recapitalization transaction strengthens Corus’ financial position providing additional financial flexibility and a more sustainable path forward as a going concern,” he said in a note to investors Monday morning.
Bank of Montreal analyst Tim Casey said that while the proposed arrangement extends a lifeline to Corus, it doesn’t change the difficult outlook for traditional media.
“Corus’s television advertising outlook continues to be affected by persistent macroeconomic uncertainty, competition, and enduring challenges due to Corus’s dependence on linear programming,” he said in a note
In its fourth quarter, reported last week, Corus posted a revenue decline of 14 per cent, and a net loss attributable to shareholders of $328-million for the fiscal year, which included non-cash impairment charges of $263-million.