The Corus logo at Corus Quay in Toronto on June 22, 2018.Tijana Martin/The Canadian Press
Corus Entertainment Inc. CJR-B-T has barely six weeks to ensure its survival.
Toronto-based Corus, which owns Global News as well as dozens of television and radio stations across Canada, has until Sept. 1 to negotiate some form of debt relief with its lenders. Otherwise, the company warned Monday, Corus may no longer be able to meet its debt commitments, which “may cast significant doubt about the company’s ability to continue as a going concern.”
Despite aggressive cost-cutting efforts – primarily cutting roughly 800 jobs or about 25 per cent of its total work force by the end of next month – analysts fear less spending will not be enough to offset major drops in revenue. The company reported $331.8-million in third-quarter revenue on Monday, a nearly 17-per-cent drop from the same period in 2023.
The company generated $18-million in cash during the third quarter, representing a 29-per-cent year-over-year decline. On an adjusted per-share basis, Corus lost 10 cents in the quarter, a stark reversal from the nine-cent-per-share adjusted profit the company reported for the third quarter of 2023.
“Management will need to come out with a much more aggressive cost-cutting drive in order to remain onside” with its lenders, Bank of Nova Scotia analyst Maher Yaghi said in a Monday morning note to clients. “We expect Corus to push further deep cuts in order to protect the balance sheet.”
Meanwhile, most of the company’s more than $1-billion in debt is due for repayment within the next few years. Corus has $290-million in bank debt set to reach maturity in 2027 and $500-million in bonds due the following year.
Starting Sept. 1, its debt agreements require Corus to maintain a maximum debt-to-EBITDA ratio of 4.25, meaning total debt cannot exceed 4.25 times its annual operating income. The company is currently allowed to hold up to the equivalent of 4.5 times its annual operating income in debt.
In a conference call with analysts on Monday morning, John Gossling, the company’s chief financial officer and co-chief executive officer, acknowledged “things are very tight and we are going to have to deal with it.” He said the company exceeded the 4.25 ratio by the end of its third quarter, putting it on a course to default, though he did not specify the exact size of the disparity.
In a note to clients published Monday afternoon, TD Cowen analysts Vince Valentini and Natale Puccia said the company’s debt-to-EBITDA ratio was likely to exceed 6.0 by the end of its 2025 fiscal year.
“We do not view this as a sustainable capital structure, so we expect the company to pursue a negotiated recapitalization with its banks and bondholders in the near-term,” the analysts wrote.
Corus was already struggling with declining revenues when it was informed last month that Warner Bros. Discovery Inc. would not renew the company’s Canadian rights to five popular specialty channels – including HGTV and Food Network – when its current deal expires at the end of this year. Corus rival Rogers Communications Inc. said at the time that it had won the rights to take over those channels starting in 2025.
Troy Reeb, a former Global News journalist who was previously the company’s executive vice-president of broadcast networks before being appointed co-CEO last month, told analysts on the Monday morning call that “misconceptions have emerged” since the Warner Bros. Discovery announcement.
Corus will continue to hold the rights to the Canadian content featured on the Warner channels that will be going to Rogers, Mr. Reeb said. In HGTV Canada’s latest broadcast year, for example, he said 12 of the top 20 shows were Canadian originals like Property Brothers “and all of them will be staying right where they are with Corus.”
“Our rebranding plans for these channels are progressing quickly and we expect to provide full details in the coming months,” Mr. Reeb said. “There is plenty of great food and home content out there in the international market that does not come from Warner Bros. Discovery.”
The TD Cowen analysts, Mr. Valentini and Ms. Puccia, also cut their rating on Corus stock to sell from hold and slashed their price target from 35 cents per share to just five cents per share. They calculate Corus will have an enterprise value of roughly $790-million by the end of 2025, well below the $1.077-billion in debt the company is still expected to hold at that time.
“It is possible that equity holders could end up with zero,” they said. “But we have assumed the Board (including Shaw family influence) will negotiate for a token ~1% of this enterprise value to remain with common shareholders.”
The Shaw family, which sold their namesake cable and internet provider to Rogers for $20-billion last year, holds a class of Corus shares granting them roughly 86-per-cent voting control of the company.