Quebecor World seeks bankruptcy protection
The Canadian Press
Published Monday, January 21, 2008 2:34PM EST
MONTREAL - A Quebec Superior Court judge is considering whether to authorize a US$1-billion financial lifeline to prevent Quebecor World Inc. (TSX:IQW) from running out of money by Thursday as it restructures under court protection protection.
"We want to focus on getting the money there so we can do whatever is right and whatever is necessary to make this company strong and get everybody comfortable that it's business as usual going forward,'' Derrick Tay, a lawyer acting for Quebecor World, said in an interview after appearing in court.
The Quebec judge was expected to grant the request later Monday and a judge in New York is expected to approve the proposal on Tuesday.
The 28,000-employee company, one of Quebec's most prominent businesses, said Monday it would file under the Companies' Creditors Arrangement Act in Canada and Chapter 11 of the U.S. bankruptcy code.
The two laws are intended to prevent creditors from seizing an insolvent company's assets while it continues to operate, but under court supervision.
Quebecor World also said it has arranged commitments from Credit Suisse and Morgan Stanley for US$1 billion, subject to court approval, to cover current operating expenses including wages and benefits.
The company considered but rejected an alternate financing proposal worth $1.2 billion from some members of the banking syndicate that balked at $400-million plan by controlling shareholder Quebecor Inc. (TSX:QBR.B) and Tricap Partners Ltd., a restructuring fund managed by Toronto-based Brookfield Asset Management (TSX:BAM.A)
The Quebec court order would restrict Quebecor World's ability to sell assets without specific approval. Each sale could only be worth $10 million with a total of $50 million .
"These steps allow the company to continue operating as a going concern for the benefit of all those affected including our many loyal employees, customers and suppliers,'' Quebecor World CEO Jacques Mallette said in a statement.
"The company has a strong business and valuable assets located throughout the world.''
The bankruptcy of the once formidable printing giant is seen by most observers as a huge disappointment for Pierre Karl Peladeau, CEO of Quebecor Inc. and a son of the company's founder, Pierre Peladeau.
But Quebecor Inc. spokesman Luc Lavoie said his boss respects the decision of other stakeholders.
"In business we have to be as cool as we can,'' Lavoie said in an interview. "I would describe him as cool and in control and focusing on the other side of the business.''
Quebecor Inc., which is also the majority partner in one of Canada's largest media conglomerates, says the parent company and its media subsidiaries "are not affected in any way'' by Quebecor World's decision to seek bankruptcy protection.
"Our business is continuing and is actually doing very well and we'll be monitoring the situation at Quebecor World as one of the stakeholders but we're focusing and concentrating on the conduct of business at Quebecor Media,'' Lavoie said.
Quebecor Media's holdings include the Sun and Osprey newspaper chains, TVA television network and Videotron cable TV, Internet and phone company.
Mallette, who has been with the Quebecor group since 2003 and became the printing company's CEO in December, blamed Quebecor World's troubles on "industry pressures, particularly in Europe, combined with the inability of the company to raise new capital in the current market environment and the inability to complete the sale of its European operations.''
The proposed C$400-million rescue from Quebecor Inc. and Tricap lapsed on Sunday. The plan was endorsed by Quebecor World's board but rejected by its bankers.
Under the proposal, Tricap and Quebecor Inc. would have each provided $200 million in interim financing. That financing would be replaced by March 31 by a recapitalization plan that wouldgreatly dilute Quebecor World shares and result in Tricap and Quebecor Inc. owning 38 and 37 per cent of Quebecor World respectively.
Quebecor Inc. currently owns 36 per cent of Quebecor World, but controls 85 per cent of its voting rights through its holdings of multiple-vote shares.
The banking syndicate, led by the Royal Bank of Canada (TSX:RY), balked at a series of 15 conditions which included having their debt getting a lower priority than the new financing in the event of a future bankruptcy.
Companies under court bankruptcy protection from creditors typically restructure their operations and financings, with the equity value for existing shareholders generally wiped out.
Quebecor World shares set an historic low of 10 cents before rising to 16.5 cents in TSX trading Monday following the announcement. That's still down 50.75 per cent from Friday and well off a 52-week high of $17.25.
Preferred shares, which normally receive dividends on a regular basis, also took a hit. The C shares were down 78.77 per cent or $2.56 to 69 cents, while the D shares were off 76.32 per cent to 45 cents.
Rating agency DBRS downgraded the long-term debt ratings of Quebecor World to default D from C. The company's operations outside of North American are not included in the creditor protection filings.
Analysts had doubted that the last-ditched financing package would be accepted. Some suggested that Peladeau's pride and ego were the main stumbling blocks to proceeding with an inevitable bankruptcy filing.
Others said Quebecor World got caught up in the credit market woes because it waited too long to resolve its liquidity problems. It was forced to withdraw a financing package last fall after markets were cool to the offer.
It also abandoned plans to sell its European division to Dutch company Roto Smeets in exchange for 150 million euros in cash, 35 million euros in notes and the rest in shares of the newly formed Roto Smeets Quebecor.
But Lavoie declined to look "in the rear view mirror'' to assess what went wrong.
"The reality is that the credit markets were terrible and they hadn't been that bad in a long long time. This explains most of what happened.''
Quebecor World, which prints books, flyers, newspapers and other publications, has been hit hard by the growth in Internet information sharing, as well as problems at its European operations and increased competition from rival printers.
The company has been struggling through a three-year, $1 billion retooling effort that involved the closing or sale of 21 plants and elimination of 5,000 positions since 2005.
Quebecor World became a global printing leader in 1999, when Quebecor Printing acquired World Color Press.
Started with one press in 1954, it grew by 1989 to become Canada's largest printer when it joined forces with Ronald's Printing. Two years later it united with Maxwell Graphics to become a North American printer.
By 1998, Quebecor World became the largest printing company in Canada and Europe and the second largest in the United States and Latin America, also operating a joint venture in India.
Quebecor Inc. shares were down $1.39 or 4.32 per cent to $30.81 on a severely negative day overall on the TSX.