DBRS Places Canwest Media Inc. Under Review with Negative Implications

DBRS has today placed its BB Issuer Rating and B (high) Senior Subordinated Notes ratings of Canwest Media Inc. (Canwest Media or the Company) Under Review with Negative Implications. The rating action reflects DBRS’s view that the current operating environment is likely to pressure the Company’s advertising-dependent conventional television business materially, and could result in pressure on its current debt covenants.

Since DBRS reviewed its ratings of Canwest Media in May 2008 (please see DBRS press release dated May 22, 2008 for details), the advertising market in Canada has deteriorated substantially, and DBRS expects this will likely have an adverse impact on the Company’s ability to sustain stable levels of EBITDA in order to support existing covenant headroom through fiscal 2009.

Additionally, as a holding company, Canwest Media is dependent on the remitted cash flows of its non-recourse subsidiaries, principally Canwest Limited Partnership and TEN Network Holdings (both are unrated by DBRS). These operations have also come under pressure, which is likely to continue and accelerate through 2009. As a result, DBRS expects that this could limit the capacity of these subsidiaries to distribute sufficient cash flow to maintain Canwest Media’s free cash flow position through the Company’s fiscal year ending August 31, 2009.

DBRS is taking today’s rating action notwithstanding the CRTC’s recent decision on broadcast signals, which DBRS had viewed as ratings neutral. DBRS notes, among other things, broadcasters were granted rights to negotiate fees for non-local “distant” signals (they were not granted full fee-for-carriage for local signals). While mildly supportive, the revenue stream is not expected to be overly material, although these fees could materialize as early as 2009.

DBRS expects to focus its review on: (1) the performance of Canwest Media’s conventional television operations, including its ability to improve operating efficiencies in order to withstand a long and protracted slowdown of advertising spending; (2) the financial flexibility of the Company under its existing covenants should a deterioration of advertising spending continue through 2009; and (3) the ability of the Company’s non-recourse subsidiaries to continue to maintain adequate levels of remitted cash flow in order to support the debt service requirements of Canwest Media.

DBRS expects to complete its review in the near term, focusing on the above items. In conducting its review, DBRS will also use its Leveraged Finance Rating Methodology in considering changes to the Company’s ratings.

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