Source: Globe and Mail

Both CanWest Global Communications and CTVglobemedia both headed into this downturn with relatively high levels of debt. CanWest borrowed to buy networks, while CTVglobemedia took on extra leverage as part of the deal that saw BCE lower its stake.

Both companies have since been hit hard by the unexpectedly sharp downturn in advertising revenues, a drop that's been especially cruel to the top line of conventional television networks.

What did CTVglobemedia (full disclosure: the company is my employer) do to deal with its changing fortunes? Along with cost cutting, the private company beefed up its balance sheet to the tune of $90-million by dumping half of its 15-per-cent stake in Maple Leaf Sports and Entertainment. That couldn't have been an easy asset to sell, as the valuation was marked down to reflect the times.

MLSE owns premium sports properties - its Toronto FC soccer team is the best value-for-dollar fan experience on the planet. And down the road, control of MLSE will likely be sold at a price that reflects a takeover premium by its largest shareholder, the private equity arm of the Ontario Teachers Pension Plan. All other things being equal, CTVglobemedia would have preferred to get that premium as it exits.

Now, what did publicly traded CanWest do recently do deal with debt? It increased covenants with lenders in November, paying fees for extra flexibility on its debt over the next two years.

CanWest has shied away from selling assets, despite pressure to cash in on its stake in Australia's TEN Network television stations. Trying to stay the course continues to undermine CanWest's stock price, and raises questions about its ability to stay solvent though a prolonged downturn.

The problem came into focus when TEN Network reported weaker-than-expected results on Thursday, and a decreasing cash dividend to CanWest and its public shareholders. BMO Capital Markets analyst Tim Casey followed up the TEN results by writing: "The trend was not surprising, but the magnitude of the decline appears slightly worse than our expectations."

"Bankruptcy is a possibility in our view," said Mr. Casey. Much the same prediction came from RBC Capital Markets, which warned: "Despite the recent renegotiation of covenants at CanWest Media, the risk of covenant violations through fiscal 2011 remains high."

© Globe and Mail