Debt repayment is likely to be a priority at Canwest Global Communications' newspaper division, as the re-born company struck loan agreements on Friday that are both relatively expensive, and flexible.
The new owners of CanWest's papers - money managers that own the company's unsecured debt - will borrow up to $750-million (U.0S.) to finance a recapitalization of the company, according to Bloomberg.
The package is being syndicated to banks by lead lenders J.P. Morgan and Morgan Stanley, and consists of a $400-million term loan, a $300-million bridge loan and a $50-million (Canadian) line of credit. Again, according to Bloomberg, the six-year term loan pays a rate that floats at a massive 600 basis points above Libor - a lending benchmark. These are junk bond rates: To put CanWest's interest payments in perspective, media companyThomson Reuters borrows in the bond market for seven years at 115 basis points over a government benchmark, while Yellow Pages
Bridge loans such as the one CanWest's new owners will take out are typically paid back quickly, either with a junk bond issue or asset sales. Incoming chief executive officer Paul Godfrey, a veteran of leveraged buyouts, has consistently said the chain will keep all its papers.
However, since this restructuring began last occtober, there has been speculation that CanWest's weekly community papers could be sold to rivals such as Glacier Media. Investment banking sources say the unit could be worth up to $70-million.
CanWest's new owners are taking on new debt to pay down $925-million in existing loans to the newspaper companies secured lenders, a group led by Bank of Nova Scotia.