Hedge fund buys CanWest bonds

One of the biggest U.S. hedge funds is building a stake in the bonds of CanWest Global Communication Corp., fuelling speculation that the fight with Goldman Sachs over the future of CanWest's lucrative specialty channels is about to get even hotter.

Angelo Gordon & Co., an $18-billion (U.S.) New York-based fund that specializes in distressed-debt plays, has been buying CanWest debt since it filed for creditor protection in October, according to sources involved in the Winnipeg-based company's restructuring. A spokesperson for the fund declined to comment.

In hedge fund circles, there's a sense that CanWest's bonds could eventually be worth far more than they currently command - about 70 cents on the dollar - as the economy recovers and the parent company reworks ownership of CW Media Holdings, the unit that holds the 13 specialty channels, including Showcase and History Television.

CW Media is not part of CanWest's court-supervised restructuring, and turned in a $129-million profit over the past nine months. Goldman Sachs owns 36 per cent of the votes in CW Media and 65 per cent of the equity.

CanWest's creditors took steps to raise their influence at CW just before the filing for creditor protection, dissolving a numbered company created in 2006 to separate the parent from its specialty TV unit. Goldman is now in court attempting to reverse that move.

The Canadian Radio-television and Telecommunications Commission is also reviewing CanWest's decision to shut down the numbered company, on concerns the move could constitute a change in control of the specialty TV channels.

A number of sources familiar with the restructuring predict Goldman will eventually be forced to redo CW's ownership on terms that are slightly more attractive to the parent company. "You're seeing the arrival of funds that are comfortable going head-to-head with Goldman Sachs," said one investment banker working on the restructuring.

Angelo Gordon is a fund with 220 employees and a 21-year track record, and one of its most senior executives, David Roberts, is a veteran of Canadian private equity, having worked at an arm of Toronto-based Gordon Capital.

A trio of distressed-debt funds dominate the CanWest restructuring due to their ownership of the company's senior, unsecured debentures; there is $761-million (U.S.) of notes outstanding.

CanWest's senior unsecured debentures were changing hands for as little as 15 cents on the dollar over the past year. The bonds spiked in price in September after CanWest sold its stake in Australia's Ten Network Holdings Ltd. for $634-million, and the debt holders took $426-million of the proceeds out of the company. As part of the move to protect its stake in CW Media, Goldman is asking the Ontario Superior Court to reverse that $426-million payment.

Several sources say that as CanWest notes increased fivefold in price, distressed-debt funds took profits on part of their position, with Angelo Gordon among the buyers.

"The fact that you have a distressed fund buying CanWest at around 70 cents tells me there are managers who see this debt eventually being retired at par," said one fixed-income expert who is familiar with the restructuring.