Two credit-rating agencies, Moody’s Investors Service and DBRS, both downgraded Canwest’s debt today (February 23).

Moody’s reduced Canwest Media’s Inc.’s “corporate family rating” and “probability of default rating” to Caa3 from B3. The Moody's report on Canwest carried the subhead: "Outlook remains negative for approximately $3.6 billion of rated debt instruments".

Canwest owns the Global TV network and 10 major-market daily papers including the Vancouver Sun and Province,  as well as  23 smaller market daily, weekly, and community papers, according to its Web site. It also has a stable of 21 specialty channels and broadcasting assets in Australia.

“Canwest entered the recession with elevated financial leverage, and, in the case of its conventional and specialty television properties, financing arrangements whose viability was contingent upon significant cash flow expansion,” Moody’s said in a statement. “These plans were at odds with long term secular pressures that have substantially eroded the profitability of Canadian conventional television. In addition, as the ongoing recession unfolds, cash flow pressure at the conventional television operation has been significantly exacerbated.”

Moody’s added that similar “secular and cyclical pressures” are facing Canwest’s Australian television and Canadian newspaper publishing operations, which have caused declining cash flow.

“The ratings downgrades reflect the company’s very weak financial results and lack of financial flexibility and anticipate that Canwest will look to restructure its business portfolio and debt structure as it addresses the impact of an adverse advertising environment and elevated financial leverage,” Moody's stated.

DBRS has downgraded a Canwest subsidiary, Canwest Limited Partnership, to CCC (high) from BB (low).

In addition, DBRS dropped Canwest Media’s secured bank debt to B from BB (high). In addition, the rating agency downgraded the Canwest’s senior subordinated notes four notches from B to CCC (low).

DBRS stated its belief that “Canwest Media’s financial flexibility is extremely limited” because it’s not in compliance with bank covenants regarding its $300-million credit facility. Waivers will expire at the end of this month.

“Secondly, the pressure on the Company’s underlying business remains significant given the dramatic economic pressure affecting the Canadian advertising market along with the ongoing structural changes in its conventional TV operations,” DBRS stated. “Additionally, similar pressure is being felt at Canwest Media’s subsidiaries, Canwest LP and TEN Network Holdings, which support Canwest Media’s $1.1 billion of debt at this level with their distributions.”