Source: Globe and Mail

Leonard Asper is doing his best Dutch boy at a leaky dike impression these days, scrambling to fix one balance sheet problem at Canwest Global Communications, only to see other issues pop up.

Canwest won the latest in a string of extensions early Wednesday in restructuring talks with lenders.  The company now has until May 19 to strike a recapitalization plan, but the deadline is considered marshmallow soft.

The over-arching issue, according to sources involved in the talks, is Canwest's need to strike a deal with lenders to every level of the media company, while at the same time potentially bringing in new financing.

So rather than simply negotiate with note holders to the parent company, who are owed $761-million (U.S.), Mr. Asper and his team increasingly find they are working with different groups of creditors at the same time, in search of a broader agreement. For example, Canwest is dealing with increasingly restless lenders to its newspapers unit, as the economic slump hits advertising revenues, and cuts into the division's cash flow.

At times, Mr. Asper literally runs from room to room at his lawyers' office in Toronto, attempting to strike a package with various creditors that keeps everyone happy (or at least balances the unhappiness.) Canwest is carrying a total of $3.9-billion in debt. RBC Dominion Securities is Canwest's financial advisor, while Osler Hoskin & Harcourt is the company's law firm.

"The best solution is a simple solution, that deals with all the credit issues. Simple solutions can be very difficult to reach," said one lawyer tied up in the Canwest talks. Several sources say lenders want to avoid a messy, expensive court filing for creditor protection, and would prefer to only resort to court protection as part of a friendly, pre-packaged refinancing of the company.

This restructuring process is complicated by the fact that Mr. Asper, as an equity holder, has seen his stake in the company whittled away: Creditors are calling the shots and shareholders will be left with very little ownership of the recapitalized company, if a widely expected debt-for-equity swap plays out. But the CEO is still running the show.

The logjam will likely be broken when one party – the note holders, the banks or an outside investor – shows a willingness to put new money into Canwest, and in doing so, gains an upper hand in setting terms for all creditors. Estimates of just how much new cash is needed vary, with $200-million at the upper end of most scenarios.

Mr. Asper continues to push for a recapitalization that sees banks increase their loans to Canwest. Banks have very little remaining exposure to the parent company, after trimming a $300-million credit facility that was led by the Bank of Nova Scotia. To date, the banks haven't been willing to roll out new loans.

There has been talk of banks extending money to the parent company in what's known as a debtor-in-possession financing, which would require a court filing for creditor protection from Canwest. But this extreme measure was rejected.

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