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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