Law Times

PAGE 4 Proposal unprecedented in Canadian bankruptcy law, lawyer says NEWS CanWest CCAA filing 'unique' BY TIM NAUMETZ For Law Times OTTAWA — A team of lawyers at McMillan LLP is working its way through a fi rst for Canada in the bankruptcy fi ling of the giant newspaper unit of Can- West Global Communications Corp. earlier this month. Th e proposal for CanWest's senior secured lenders to ac- quire its newspaper division if its agent can't fi nd a suitable buyer within seven weeks is unprecedented under Canadi- an bankruptcy law, says a Mc- Millan partner who has been at the centre of the action. "Th is is very unique in Cana- da. We don't have in our legisla- tion anything that contemplates this," says John Cliff ord, leader of the merger-and-acquisition component of the fi rm's team on the bankruptcy fi ling. In past insolvency cases under the federal Companies' Creditors Arrangement Act, it has usually been another fi rm Law List, 2010 More than a phone book Canadian Your instant connection to Canada's legal network, available in print or electronically! Trusted and relied upon for more than 125 years Inside you will find: • an up-to-date alphabetical listing of more than 57,000 barristers, solicitors and Quebec notaries, corporate counsel and law firms and judges in Canada • all contact information as supplied for the Supreme Court of Canada, the Federal Court of Canada, Federal Cabinet Ministers, departments, boards, commissions and Crown corporations • legal and government contact information related to each province for the Courts of Appeal, Supreme Courts, County and District Courts, Provincial Courts, law societies, law schools, Legal Aid, and other law-related offices of importance Order your copy today! 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In another unusual and pos- sibly controversial twist to the high-profi le bankruptcy, Can- ada's fi ve largest banks will be among the senior secured lend- ers that could eventually own one of the most infl uential and important news institutions in the country. Should the eff ort to fi nd a buyer fail, the insolvency pro- posal calls on the secured lend- ers to acquire CanWest Ltd. Partnership, the name of the newspaper unit, and create a new company that would even- tually issue shares as the major banks and other creditors at- tempt to recoup losses. Still, while some of the jour- nalists among the media com- pany's 5,300 employees might be concerned about the pros- pect of bank ownership, the fi nancial institutions and other lenders intend to establish an independent board of governors that would direct the newspaper giant at arm's-length. "Th e lenders would establish a new company in which they would hold shares, and that new company would have an independent board of directors, independent of the lenders, in- dependent of CanWest, and it would complete the transac- tion," says Cliff ord. An eventual acquisition by the lenders would require court approval. anLawList_Jan11_09.indd 1 1/7/10 1:26:09 PM debt for the new company. As a result, whoever wants to buy the company would have to come up with a very secure $915 mil- lion in cash. "Th ey will convert that 'We don't have in our legis- lation anything that contem- plates this,' says John Clifford. CanWest Global's debt to- talled nearly $4 billion when it made a separate CCAA fi ling in October. At the same time, the company faced demands for repayment of nearly $1 billion when the newspaper division sought bankruptcy protection earlier this month. Under the insolvency pro- posal approved by Ontario Superior Court Justice Sarah Pepall, the newspapers can avoid a bank takeover if a buyer or group of investors can table a cash off er that is higher than the amount of debt the lenders are proposing to convert into own- ership of the media properties. Th e senior lenders are owed a total of $940 million but are of- fering a discount of $25 million that would remain as unsecured amount of debt into ownership and have said if anyone comes along and proposes a transac- tion in which the lenders are going to get paid out cash for more than that amount, we will accept that other transac- tion," says Cliff ord. "It has to be just cash to the lenders of that amount or more." In yet another odd twist, the big banks would be willing to lend a buyer — likely one with very sound balance sheets — the money required to buy the company. "Why not?" Cliff ord asks. "Th e banks are in the business of lending money; they're not in the business of owning their cus- tomers. So, if there is a superior proposal out there that is going to see the banks get their debt paid out and maybe put into debt of a diff erent form or nature, I would have thought that a bank would be interested in looking at that pretty seriously." Th e prospect of Canada's larg- est banks owning the CanWest properties, including a national news-gathering branch, 12 dai- ly newspapers in the country's largest cities, and more than 30 community publications, would undoubtedly attract attention in Parliament, at least from the New Democratic Party. 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He has recruited an exceptional group of lawyers and academics from across Canada and the US to ensure unrivalled subject matter breadth and depth. Stay on top of the latest legal developments and manage emerging issues • tax • securities law and disclosure didn't want to be identifi ed but agreed to discuss the CanWest bankruptcy proposal says it's un- likely the banks would want to hang on to what could become a highly controversial asset. "It's certainly unusual to have the banks take over the way they are but it's the only way they see that they can get their money out of this," the lawyer tells Law Times. "I'm not concerned be- cause I think at the end of the day the banks want to get out. Th ey want to salvage the busi- ness as a going concern and then get out by putting it back into the public by essentially selling their interest and having the company trade again." Carleton University jour- nalism professor Christopher Waddell also says he's not con- cerned about the idea of Cana- da's major fi nancial institutions — often the subject of public criticism for high credit-card interest rates and bank fees — taking over so many large newspapers. "I don't expect that the banks For a 30-day, no-risk evaluation call: 1.800.565.6967 LT0110 Mahony_Law of Climate Change (LT 1-3x4).indd 1 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. www.lawtimesnews.com 1/12/10 3:15:35 PM are going to be active owners of the newspapers and dictate what happens in terms of newspaper policy or editorial policy," says Waddell. "If anything, I would suspect that individual publish- ers may have more freedom un- der this system than they would have had under the CanWest system." LT January 18, 2010 • Law Times Editor: Dennis E. 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