While credit bidding has an established history in Canada, there is little case law on the topic. The Companies’ Creditors Arrangement Act (CCAA) proceedings of the Canwest Publishing Group (Canwest) provide the best and most recent example of the considerations in a credit bid, including the establishment of a fair process for the stakeholders, no matter how unique.
In this case, all three motivations for credit bidding were at play. The senior lenders (owed approximately C$950-million) were prepared to put forward a credit bid as a stalking horse in order to encourage a higher offer in an auction process. If that offer did not materialize, the senior lenders were prepared to own, hold, and sell in the future, to avoid an immediate loss on their investment. The unsecured noteholders (owed approximately US$400-million) were prepared to buy, not only to protect their position, but to give effect to a “loan to own” strategy for many of them, particularly those that bought notes at a discount.
Canwest was the largest publisher of English-language daily newspapers in Canada, as measured by paid circulation and revenue. A subsidiary of Canwest owned the National Post, one of only two Canadian national newspapers. Prior to filing for CCAA protection before the Ontario Superior Court of Justice, Canwest had defaulted on its senior secured credit facilities and its senior subordinated notes. In the months leading up to the filing, Canwest and its senior lenders negotiated the terms of a comprehensive, pre-packaged restructuring transaction, pursuant to which the senior lenders would put forward a stalking horse credit bid and whereby the senior lenders would acquire the businesses of Canwest in substantial satisfaction of their outstanding secured claims (the Credit Bid). The terms of such transaction were set out in a Support Agreement which provided, among other things, that Canwest would file for protection under the CCAA, take steps to implement the transaction and immediately conduct a Sales and Investor Solicitation Process (the SISP) for the purpose of identifying if there was an offer for the acquisition or recapitalization of the businesses of Canwest that would result in a cash distribution to the senior lenders on closing of the total amount of their claims minus a discount (a Superior Cash Offer).
Canwest and the senior lenders agreed that if a Superior Cash Offer was identified in the SISP, Canwest would pursue the transaction contemplated by the Superior Cash Offer, subject to a timeline for completion set out in the Support Agreement. In the meantime, the Credit Bid provided stability to Canwest as it demonstrated, from the outset of the CCAA filing, that Canwest had the support of its senior lenders and would carry on business with such senior lenders as owner, unless a better offer came forward. In any event, there would be a going-concern solution to the insolvency of Canwest. The process started in full gear. Read more.
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