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At first glance, CanWest Global Communications' bond holders all look the same. Assembled round a board room table, these fund managers would be a sea of navy blues and charcoal grays.
The Armani-clad exteriors cover very different beasts, and the tensions within this group will dictate how the company is restructured.
CanWest owes bond holders $761-million (U.S.) These investors are largely in control of the company, after putting up $100-million (Canadian) of new money on Wednesday, and allowing the company to pay off its bank loans.
Some of the bond fund managers holding that $761-million have been around for several years, and bought the debt at something close to 100 cents on the dollar, when CanWest's future looked rosy. These investors would include insurance companies and traditional mutual funds.
However, a significant portion of the media company's bonds are now in the hands of what's referred to in polite circles as distressed debt fund, which most of us call vultures. These funds could have bought CanWest paper at something in the 20 to 30 cent on the dollar range in recent months. A vulture fund's concept of a successful restructuring – a win on the investment – is substantially different from that of a traditional bond fund manager.
In some restructurings, tensions between these creditors blow up attempts to get a company back on its feet. Disputes break out, and end up being resolved by a contested court filing for creditor protection. When a judge gets called in to sort out a company's finances, and the conflicting claims of creditors, the only winners tend to be lawyers.
CanWest's creditors are hoping to avoid that fate. The dominant players in the restructuring appear to be three distressed debt funds with common interests. GoldenTree Asset Management and Beach Point Capital Management – two
If the creditors can agree on a strategy for CanWest that fixes the company's balance sheet – a scenario that likely involves a swap of debt for equity – what's been a tortured restructuring to date might pick up speed. The common goal would be creating a media company that's got the capital structure needed to prosper when the economy picks up, and advertising spending kicks in. The creditors and the company want that plan to be in place by mid-June, and approved by mid July.
If, on the other hand, CanWest's creditors go to war with one another, this restructuring turns ugly, quickly.
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