DBRS Places CanWest MediaWorks Under Review with Negative Implications

DBRS has today moved CanWest MediaWorks Inc.’s (CanWest or the Company) ratings to Under Review with Negative Implications from Under Review with Developing Implications. DBRS originally placed CanWest Under Review with Developing Implications at the beginning of this year following its decision to invest in the assets of Alliance Atlantis Communications Inc.

The rating action is based on a number of factors, including the Company’s recent announcement that it plans to take CanWest MediaWorks Income Fund (the Fund) private by purchasing the 25.7% interest it does not own for $9.00 per unit (cash), or approximately $495 million. As a result, DBRS placed the Fund’s stability rating, STA-3 (high), Under Review with Developing Implications (see separate press release of today).

DBRS expects that the transaction will be funded through a $1.3 billion short-term credit facility at CanWest MediaWorks LP (the LP), part of which DBRS expects will be used to refinance the LP’s existing $825 million credit facility. While this facility may have limited resource to CanWest, DBRS remains concerned about the overall pressure on the group’s financial profile. Concurrent with the privatization of the Fund, debt levels could increase moderately at CanWest, potentially pressuring the Company’s financial risk profile at the corporate level.

The rating actions reflect the increased pressure on the Company’s core operations due (1) the underperformance in the Canadian television operations due to intense competition, and (2) continued weakness at its Australian television investment due to softness in the advertising market.

Also the rating actions reflect concerns over the clarity of the Company’s current strategic direction and the increased propensity for event risk. DBRS notes that the proposed privatization of the Fund is one of a number of transactions initiated recently. In January 2007 the Company agreed to invest $200 million for a 29% economic interest in the Alliance Atlantis Specialty Channels operations, which is expected to close in August 2007. Additionally, the Company announced in May 2007 that it has entered into an agreement to dispose of CanWest MediaWorks (NZ) Ltd., which DBRS expects will generate gross proceeds of roughly $310 million. CanWest also announced in December 2006 that it is exploring the possible sale of its Australian television operations, Network TEN. While DBRS expects the sale of Network TEN could generate in excess of $2 billion in proceeds, the use of the proceeds (should a sale occur) remains unclear.

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