DBRS cuts Canwest Media ratings

Three months TSX trading in Canwest

Bond-rater DBRS said Friday it had downgraded Canwest Media, a subsidiary of Canwest Global Communications, because of pressure on advertising markets.

Looking ahead to the company's fiscal 2009, which ends next Aug. 31, DBRS said it expects weak advertising markets will hurt internally generated cash flow (through Canadian television), and cash flows from wholly owned subsidiaries Canwest LP (newspapers) and TEN Network (Australian television).

Cuts in advertising revenue, combined with Canwest Media’s high debt, have reduced financial flexibility and caused constraints on liquidity, the rating agency said.

It cut the company's issuer rating two notches, to B (high) from BB, and said the trend was negative, a change from the previous status of stable.

It also assigned a rating of BB (high) to Canwest Media’s secured bank debt, and said the secured debt had "outstanding recovery prospects."

But the company's senior subordinated notes were cut one notch to B from B (high), and have "below average" recovery prospects, DBRS said on its website.

DBRS said the ratings took into account Canwest Media’s recently announced cost cuts, estimated to save $47 million in the current fiscal year and just over $60 million annually over a full year.

Despite the cuts, "DBRS expects revenue pressures will be a more significant driver" on the company's finances.

While Canwest has more financial room after a recent amendments to its debt covenants, if the economy slides more than anticipated, "the company’s covenant cushion could erode faster than its headroom increases throughout fiscal 2009."

Canwest Global stock rose one cent to 74 cents in TSX trading. It has ranged between 61 cents and $7.50 in the past year.

Fairfax Financial Holdings, often admired for its acumen, recently said it bought 2.9 subordinate voting shares of Canwest Global, raising its stake to 22.3 million shares or 22.4 per cent of the total outstanding.