DBRS Confirms CanWest Media Inc. at BB / B (high), Stable Trends

DBRS has today confirmed the BB Issuer and B (high) Senior Subordinated Notes ratings of CanWest Media Inc. (CanWest Media or the Company). At the same time, the ratings have been removed from Under Review with Negative Implications, where they were placed on May 25, 2007.

At the time of the initial review, DBRS was concerned with underperformance of the Company’s core Canadian television operations and weakness at its Australian investments due to softness in the advertising market in that region.

Additionally, DBRS was uncomfortable with the lack of clarity surrounding the Company’s strategic direction, both domestically and internationally. This included the acquisition of Alliance Atlantis Communications Inc., the privatization of CanWest MediaWorks Income Fund (now CanWest Limited Partnership), and increased propensity for event risk at TEN Network Holdings Limited.

Since that time a number of events have occurred to give DBRS comfort with the Company’s ability to maintain its current ratings, including (1) improvement in the Company’s Australian operations, benefited in part by a more robust advertising market, and (2) comfort with respect to the Company’s international and domestic operational strategy.

That said, while the Company’s portfolio of legacy Canadian specialty television stations continues to generate strong performance, its Canadian conventional television operations have been adversely affected recently by the Writers Guild of America writers strike and the exclusion of the NFL. While the Company will remain challenged to generate strong full-year results in this segment, DBRS is more confident with the Company’s ability to stabilize and improve its conventional television operations through the remainder of fiscal 2008 and into 2009.

Despite expectations of weaker economic conditions, DBRS expects CanWest Media’s Canadian television ad bookings to be steady given its stronger programming line-up, including top television shows House, The Office and Bones. Additionally, recent cost-reduction initiatives, including centralization of broadcast functions for local television, should moderately enhance profitability in conventional broadcast.

Financially, the rating reflects the Company’s high leverage, with debt-to-remitted cash flow at the holding company expected to be roughly 3.75 times and consolidated debt-to-EBITDA at just over 6.0 times at the end of fiscal 2008 (pro-forma the Alliance Atlantis acquisition), and its dependence on remitted cash flow from its levered subsidiaries, principally CanWest Limited Partnership (the subsidiaries debt is non-recourse to CanWest Media).

DBRS expects CanWest Media to generate cash flow on a remitted basis of roughly $290 million in fiscal 2008. This should result in roughly breakeven free cash flow at the holding company level after funding the Company’s estimated interest costs of roughly $110 million, capital expenditures of roughly $35 million, and dividend to CanWest Global of roughly $75 million during the Company’s fiscal year.

Note:
All figures are in Canadian dollars unless otherwise noted.