Friday, 24 June 2016

Postmedia – Dust-up Coming

Postmedia – Dust-up Coming

At least that’s what Globe and Mail Report on Business columnist Andrew Willis says, in his column of June 7, 2016:

“The fate of the country’s largest newspaper chain will be decided in a showdown between its two major creditors, a rough and tumble New Your based distressed debt investor and a 15 employee bond fund from the Toronto suburbs”

The former, of course, is Goldentree Asset Management, while that latter is Canso Investment Counsel.

Postmedia’s troubles are a result of the combination of high interest rate loans (“equivalent of payday loans” says Mr Willis, at 12.5% on 363 million to Goldentree and 313 million to Canso at 8.25%), and declining advertising revenue (down 18% YTY in the latest quarter).

That squeeze means everyone takes a haircut (though there’s not much hair left to cut) or the two creditors fight it out for the remaining money in the company.  Postmedia has looked around earnestly for new creditors and/or partners, but there seem to be no takers.

Apparently Canso holds the high cards, being the first-lien note holders.  Goldentree is second-lien, so they don’t get anything until Canso is paid off.  With the amounts outstanding, versus the assets of the company, it is doubtful that Goldentree will see anything in a restructuring, and Canso might not see much either.

If the investors agreed to take it easy on Postmedia, it might be able to retrench, creating positive cash flow for everyone.  But it seems to me that they are in a bit of a prisoner’s dilemma situation – if they can trust each other, they could both come out further ahead than if they fight it out.  But, game theory says that is a tough spot to be in.

Canso’s first-lien notes are due in August 2017 while Goldentree’s are due in 2018.  So, it seems like Canso has the hammer in this one.

Mr. Willis notes that “there’s speculation Goldentree will push for concessions from its fellow creditor”.  But, unless they have some sort of leverage outside of their respective legal position with Postmedia, it is difficult to see what concessions they could possibly gain.

On a related note, Postmedia recently sold its printing plant in London, Ontario.  I did a ride-along once with a trucker friend to that plant, back in 2002.  It was fascinating to see the big ink tanks being filled.  And, as my trucker friend noted, it is nearly impossible to fill a huge newspaper ink tank, and not spill a little of it on yourself.  As with black ink back then, so it is with red ink now.

A Golden Tree

 A Canso Aircraft

While these big investment firms fight it out, you might want to consider an exciting biking trip on the Kettle Valley rail-trail.  It’s the adventure of a lifetime, even more fun than big business.  And if you are in big business, it’s a nice stress reducer.

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