DBRS Confirms CanWest MediaWorks Inc. at BB

Dominion Bond Rating Service (“DBRS”) has today confirmed the Issuer Rating of CanWest MediaWorks Inc. (“CanWest” or the “Company”) at BB. The trend is Stable. The credit profile of CanWest remains relatively stable at the BB level, primarily due to lasting high leverage. Even so, there has been a continued focus on reducing debt that has helped offset weakness in the Company’s domestic TV segment. As well, the newspaper operations remain stable and the international operations are showing strong results.

DBRS notes that CanWest is in the process of rebuilding its domestic broadcasting schedule in an effort to unseat CTV Inc.’s (“CTV”) dominant position of the top 20 programs in the Canadian TV landscape. The rebuilding of CanWest’s schedule is expected to take several years and its recent weak schedule has caused earnings in the domestic TV segment to decline materially. DBRS believes these declines are due to the long-term ratings cycle among TV networks and the fragmentation of traditional TV audiences. To date, some of CanWest’s programs are showing early signs of success; however, there are few indications that CTV’s schedule is weakening.

Despite difficulties in the domestic TV segment, the rating remains unchanged due, in part, to the Company’s focus on debt reduction through asset dispositions and free cash flow. CanWest spun off most of its newspaper assets into an income trust (CanWest LP) in fall 2005 and the ensuing proceeds were used to reduce debt. In addition, DBRS expects the Irish TV assets to be divested with the proceeds used to reduce debt. Lastly, CanWest has directed most free cash flow towards debt reduction.

The benefits of diversified operations are evident when considering that the success in international operations (Australia & New Zealand) and stable domestic newspaper operations continue to mitigate weakness in Canadian TV broadcasting. DBRS notes that distributions from Australian TV broadcasting (Network TEN) remain strong despite recent weakness in the local advertising market, improvement in ratings from a primary competitor (Network 7), and a strong Canadian dollar. In addition, the operations of the newspaper assets, through CanWest LP, generate stable distributions, in spite of structural changes taking place marked by a decline in circulation due to the Internet, specialty publications, growth of 24-hour news networks, and lifestyle changes.

Even though the Company has been reducing debt and continues to generate free cash flow, DBRS notes the ratings are constrained by the high degree of dependence on advertising revenue and the relatively weak financial profile (debt reduction has been offset by EBITDA weakness). DBRS expects earnings to stabilize in the near term for the Canadian TV segment, which, along with further debt reduction, should begin to strengthen the overall financial profile.
DBRS notes that the ratings could come under pressure if the Canadian TV segment worsens or if debt reduction ceases to be a priority. Otherwise, ratings could improve if the financial profile strengthens or if the Company regains a strong position in the Canadian TV segment.

Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.