Postmedia debtholder financed Torstar purchase
$55-million loan from Canso supplied funding for deal
NordStar’s purchase of the Star’s parent company was financed entirely by a third party, Canso Investment Counsel Ltd., the Star has learned.
Canso lent $55 million to NordStar Capital LP, according to a brief description of the deal published on the online profiles of two lawyers at Bennett Jones LLP. NordStar subsequently announced its intention to purchase Torstar on Tuesday for $52 million.
The unsecured debt pays 10 per cent annual interest, the briefs on the Bennett Jones website said.
According to a source familiar with the purchase agreement, a “significant amount” of the $55 million will be repaid upon the deal’s closing.
The Star reached out to the lawyers involved. Mark Rasile declined to comment. Dom Sorbara did not return a message. The announcements were removed shortly after the Star called them.
Torstar spokesperson Bob Hepburn referred comment to NordStar.
“In securing financing for this transaction, we spoke with dozens of potential financing parties. From that group, four competitive options emerged. In the end, we went with the lender who we felt best understands and has the most experience in the Canadian media industry, Canso,” NordStar said in an emailed statement.
Canso did not respond to a request for comment. None of the public disclosures filed in relation to the deal as of early Thursday evening mentioned Canso’s role.
“Canso is a private group and typically
does not like to be part of press releases. That said, their participation would have been disclosed in due course as part of customary public fillings,” NordStar’s statement read.
Canso has long been the biggest debt holder for Canada’s largest newspaper chain, Postmedia. The Richmond Hillbased firm currently holds $95.2 million in Postmedia’s debt, according to a press release from last August. Bennett Jones represented Canso in that deal.
At one point, Canso held $250 million in first tier debt and used its leverage to gain the upper hand when Postmedia restructured its debt in 2016, nearly wiping out the investment of the other major debtholder, U.S. hedge fund GoldenTree Asset Management.
“Although it is a private transaction, let us be absolutely clear: The financing arrangements for the NordStar bid are not, in anyway whatsoever, connected directly or indirectly with any other media company,” NordStar said.
The fact that NordStar got its financing from the company which is also Postmedia’s major debt holder is more likely a coincidence than a sign of a broader corporate alliance, said one finance industry expert.
“Lenders who deal with distressed companies typically specialize in a sector, so I wouldn’t say there’s any obvious indication of a broader alliance. And as long as the borrower keeps making their payments, there’s really not a lot a lender can do to influence things,” said Andrey Golubov, a finance professor at the University of Toronto’s Rotman School of Business.
Golubov added that NordStar is almost certainly paying a higher rate than they would have, pre-COVID.
“The rates are definitely higher now than they were three or four months ago, particularly in the distressed sector,” Golubov said.
A low-profile firm situated far from the plush Bay street offices of their financial competitors, Canso has a contrarian reputation for investing in companies abandoned by others, including BlackBerry Ltd. and Yellow Media Ltd.
Run by a former air force navigator, the firm uses a “very sound, bottom-up analysis that only a fraction of people in the market are doing,” according to a 2014 Bloomberg report. After years of work with Postmedia, Canso now has a deep understanding of the news business that few investors share.
Ken Doctor, a Californiabased author and news industry analyst who writes about the financial takeovers of newspaper chains, says the undeniably good thing about NordStar’s takeover of Torstar is that it takes the company private.
“Public markets aren’t the place to be right now,” he said. “Producing quarterly earnings and dividends is pretty much impossible these days.”
But Doctor questions how much the Canso loan will affect NordStar’s ability to invest in the newsroom.
“We have strong independent daily newspapers in at least half a dozen U.S. cities right now with billionaire or super wealthy owners. They’ve stayed the course. In some cases, they’ve added,” he said. “Is the Toronto Star getting that kind of backing?”
“Are they able to make those investments with the financial obligations they have to pay back the purchase price?”
Paul Rivett, one of the partners behind NordStar, said he has no plans to cut back at the Star. “You can’t grow revenue on the back of cuts. We don’t subscribe to cutting,” Rivett told the Star in an interview published Thursday. “Our current focus is that we’re excited to bring new potential revenue sources and partners to the business and find ways to grow, not cut.”
Like all major business transactions, NordStar’s takeover of Torstar still has to be reviewed by Competition Bureau Canada to determine if it complies with the Competition Act. The Bureau’s wide mandate means it can review “transactions of all sizes and in all sectors of the economy,” spokesperson JeanPhilippe Lepage wrote in an email, “to determine whether they will likely result in a substantial lessening or prevention of competition.”
Canso’s financial interest in Postmedia and NordStar could be part of the review, as financing is included in the Bureau’s merger enforcement guidelines.
NordStar was formed by Toronto businessmen Rivett and Jordan Bitove as a vehicle to take Torstar private. Former Ontario premier David Peterson will serve as the company’s vice chair, the pair announced.
The takeover’s details, which haven’t been made public, have already been approved by Torstar’s board of directors, a “significant majority” of the members of the five families who control the Class A voting shares, as well as Fairfax Financial Holdings, which held 40 per cent of the non-voting Class B shares.
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