By Andrew Macdonald
Mark Lever and Sarah Dennis hired a financial advisor in October 2023 to recapitalize on a $32M debt held by Fiera Private Debt, money lent in 2017 to allow Lever and Dennis to buy Atlantic Canada newspapers from Transcontinential Inc. and create formed SaltWire Network Inc.
“Since October 2023, (Lever & Dennis) the Borrowers, through their corporate finance advisor, FTI Capital Advisors-Canada ULC (“FTI”), have been conducting a Recapitalization Process. The Applicants (Fiera) agreed to provide the Borrowers until the end of January 2024 to deliver a letter of intent acceptable to the Applicants. The Borrowers did not receive any letters of intent before the end of January 2024. Although a draft letter of intent was submitted on February 22, 2024, it was highly conditional and did not provide a framework for an acceptable transaction.”
What the documents do not spell out, is whether Lever was planning to make a bid to buy out Fiera’s debt, or whether the intended ‘transaction’ involved investors helping Lever out, or whether the ‘transaction’ involved another media entity buying SaltWire.
Fiera says SaltWire and the Halifax Herald Ltd. “are insolvent and have outstanding liabilities of over $94 million. It spelled out that debt in court documents:
(a) Over $32 million of senior secured debt owing to the Applicants;
(b) Over $2.6 million owing by The Herald for missed special payments in respect of
its defined benefit pension plan; and
(c) Over $7 million in outstanding HST (prior to accounting for any available tax
refunds).
SaltWire was recently ordered to pay $500,000 as security for costs in connection with litigation involving Transcontinental (defined below). SaltWire was also recently forced to pay $70,000 after an action was brought against by one of the multi-employer pension plans
sponsored by a participating union for failure to make those payments.
KVS Advisors has been appointed monitor of SaltWire’s creditor protection and said “ present cash balance is $300,000.For several months, the media Companies have been funding their businesses by deferring payment of HST and certain pension and benefit amounts deducted from employees but not remitted on a timely basis.
“It reports SaltWire and the Herald as of Jan. 2, 2024, owed Canada Revenue Agency approximately $7 million, which has been a primary source of capital from which the media companies have funded their businesses. If not for this source of liquidity, the media companies would not have had sufficient cash to fund their operations, as their businesses do not generate positive cash flow and they do not have access to an operating line of credit.”
A letter dated Oct. 12, 2023, spelled out the financial advisor assisting with raising capital or undertaking a transaction — a sale.
FTI stated in a letter to Lever it would “determine the capital support required to implement a focused and value-maximizing marketing process; Concurrently, FTI would develop and implement a focused marketing process with a view to solicit Term Sheets/Letters of Intent by no later than Jan. 31, 2024, and designed to maintain competitive tension and drive value for the Company and its stakeholders.
FTI would:
• Identify and discuss with the Company, a group of suitable capital providers and partners;
• Prepare appropriate information to be provided to potential capital providers and partners;
• Obtain Term Sheets/Letters of Intent and evaluate the terms of the proposals;
• Provide advice through execution of definitive transaction agreements.”
It stated its role would also involve “approving a sale investment and solicitation process to be conducted by FTI Capital Advisors-Canada ULC.
“SaltWire and The Herald operate the largest media and newspaper business in Atlantic Canada, including The Chronicle Herald, the Cape Breton Post, The Telegram (St. John’s) and The Guardian (Charlottetown) and offer print and online sources of news.
“In 2017, the Companies acquired several publishing assets including a number of publications from Transcontinental Nova Scotia Media Group Inc.,” reads court documents.
KVS states in court documents that, “In the past several months (Lever)…failed to provide timely, complete and comprehensible financial information to the Lenders’ financial advisor, KSV Advisory Inc. or to respond to KSV Advisory’s questions regarding the financial information, and cooperate or engage in meaningful discussions as to the Lenders’ concerns about the business and the Borrowers’ credit position.”
KVS says the Lever led recapitalization plan put in place in October 2023 was designed to “find an investor or purchaser for their business. At least one letter of intent acceptable to the Lenders was to have been delivered by Jan. 31, 2024; however, no LOIs were delivered by that deadline.
“Although a preliminary draft LOI was delivered on Feb. 22, 2024, it was highly conditional and not, in its current form, acceptable to the Lenders,” adds KSV.
Fiera agreed to allow Lever “until the end of January 2024 to deliver a letter of intent acceptable to the Lenders. The Borrowers did not receive any letters of intent before the end of January 2024.”
“The Lenders have lost faith in senior management who have, over the course of the last several years, mismanaged the business, used employee pension funds for operations, routinely failed to remit HST as it was collected, instead funding the business with such amounts,” said Fiera.
“The Companies are insolvent, are unable to pay their debts as they come due and are on the verge of a liquidity crisis—the Borrowers have outstanding HST liabilities of over $7 million (which continue to accrue), The Herald recently had a court decision issued against it to pay over $2.6 million in outstanding pension liabilities and, on March 5, 2024, SaltWire had a decision issued against it requiring it to post $500,000 as security for costs in the Transcontinental litigation,” said Fiera in documents.
Fiera is being represented by Jennifer Stamof Norton Rose Fulbright Canada LLP. She is working with Halifax law firm BoyneClarke, with lawyer Joshua J. Santimaw. SaltWire is being represented by Maurice Chiasson and Sara Scott of Stewart McKelvey. Chiasson is a veteran of court-imposed restructuring proposals and files.
SaltWire is jointly owned by Dennis and Lever, each holding 50 per cent, via the Sarah A. Dennis Family Trust 2009 (50%) and the Mark Lever Family Trust 2017 (50%), said Lever in an affidavit.
There is a lot at stake with the media companies.
“The Herald was incorporated in 1875, but its roots can be traced back to 1824. The Chronicle Herald is the oldest remaining independent newspaper in the country,” said Lever. His spouse, Sarah Dennis “is the fourth generation of the Dennis family to lead Nova Scotia’s largest privately owned media company, who personifies the Herald’s long-held motto that it is ‘dedicated to the service of the people [and] that no good cause shall lack a champion and that wrong shall not thrive unopposed.’” said Lever.
“SaltWire’s mission extends the Herald’s promise to ‘provoke thought and action to improve communities throughout Atlantic Canada,”, added Lever.
“The Dennis family has held deep roots in Nova Scotia for four generations, through its journalism and charitable endeavours, including the Dennis Building at Acadia University, the Coady Institute at St. Francis Xavier University, the Dalhousie Medical Research Foundation, Dalhousie’s William Dennis Chair in Epilepsy Research, the Dartmouth General Hospital Foundation, the Cape Breton Cancer Centre, the Duke of Edinburgh Awards for many years, a special pediatric fund at the IWK, the Victorian Order of Nurses, the Cystic Fibrosis Society and the Sisters of Charity,” said Lever.
“The Dennis family has supported public discourse through journalism in large and small local communities. The role of SaltWire in Atlantic Canada is key in providing citizens with the knowledge to make informed decisions about issues critical to their daily lives, which includes what is happening in their city halls, schools and businesses,” added Lever in court documents.
“With almost 200 years telling Atlantic Canadians’ stories, SaltWire publications are Atlantic Canada’s essential source for the news, opinions, stories and information. Combined with its digital presence at SaltWire.com, I believe that more than a million Atlantic Canadians get their news from SaltWire products each week.”
SaltWire owns property at 255 George Street, Sydney, and 2 Second Street, Yarmouth, and also at 36 Austin Street in St. John’s, Newfoundland and Labrador. In addition, SaltWire leases premises at various locations in Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, said Lever.
“In recent years, SaltWire has looked to diversify and as a result, developed Door Direct. Door Direct has evolved from the distribution arm of SaltWire, which delivers daily and weekly newspapers, free circulars, advertising flyers, catalogues, and promotional and sample
products to nearly half a million homes throughout Atlantic Canada. The carrier network of Door Direct leverages the existing 830-plus carriers of SaltWire, utilizing licensed technology and proprietary databases developed by Door Direct/SaltWire to make deliveries for third-party companies to customers in rural areas, often called last-mile delivery,” wrote Lever.
“While needs for physical distribution of newspapers and flyers are declining, Door Direct aims to take advantage of SaltWire’s existing carrier force with modern technology and utilizing this workforce to improve e-commerce shipments through Atlantic Canada, particularly in the rural areas of Nova Scotia, Prince Edward Island and Newfoundland and Labrador.”
SaltWire financial statements show an operating loss of $4,160,732 for the reporting period, as well as a negative cash flow, and a shareholders deficiency of $37,475,114. Herald financial statements in fiscal year 2022 “show an operating loss of $24,839,386 for the reporting period due to material accrued losses on pension obligations. This is an accounting matter due to the nature of the defined benefit pension plan and does not reflect a cash loss. The Herald had positive cash flow of $204,819 for the period, and a shareholders’ deficiency of $24,245,848.”
“The financial statements show a working capital deficiency of $4,275,854. There is a $10,959,740 account receivable shown as being due from SaltWire, which reflects the significant financial support provided by the Herald to enable SaltWire to fund operations,” said Lever.
SaltWire Group currently employs 390 people in the Atlantic Provinces, with a combined annual payroll of approximately $17.5 million plus commissions, overtime, bonus payments and benefits, he said.
Of the 390 workers, 261 of these employees is based in Nova Scotia. The media companies have 800 independent contractors acting as carriers, with combined annual payments totalling approximately $11.7 million. Of the 800 newspaper delivery folk, 380 are in Nova Scotia, 337 based in Newfoundland, and 119 over on Prince Edward Island.
“The rise of global entities such as Google and Meta (Facebook) has presented a massive financial challenge to the traditional media industry in both Canada and globally, and the SaltWire Group has been no exception. Revenue from traditional media advertising has long supported the production of journalistic content, but in recent years, revenue from traditional advertising has undergone significant change. In addition to these global challenges, Canadian media companies are under pressure from domestic government-funded competitors, including the Canadian Broadcasting Corporation and Canada Post,” wrote Lever. Canada Post is a Herald competitor in the delivery or retail flyers.
“A significant percentage of the SaltWire Group’s traditional media advertising revenues, have migrated to foreign digital platforms. The result has been a steady decline in advertising revenue, which continues. In 2017, advertising revenue represented 43% of total revenue. In 2021, advertising revenue represented just 20% of total revenue.
“Nationally, traditional media industry have struggled against internet media businesses such as Facebook, Amazon, Netflix and Google. These platforms do not independently produce information, but recycle content produced by Canadian news media to capture audiences by providing a conversation space for users. Facebook and Google alone, through their presence on the internet and highly sophisticated algorithms, divert 80 per cent of all online advertising revenue in Canada,” said Lever.
“In addition to the decline in advertising revenue, paid print subscription revenue has also declined every year since 2017. Digital-only subscriptions are growing, but the decline in print subscription revenue has outweighed the growth in digital subscription revenue.
“Revenue from contract printing for other publications has grown between 2017 and 2021, increasing revenue by approximately $2.1 million in this time period. While this has been a bright spot for the Applicants, total revenue has declined at an annual rate of nine per cent from 2017 to 2021, representing a total revenue drop of $14 million.”
Lever said Fiera’s “insistence and over (Lever and Dennis’) objection, SaltWire engaged PwC Canada to run a sales process that was both short-sighted and premature.
“Fiera’s pressure increased over the fall of 2023 and SaltWire requested time to raise capital and refinance. Fiera provided a window to complete the process that extended for 90 days, but that included the 2023-24 holiday period. This process, which utilized Fiera’s handpicked advisor, yielded no results, but did result in increased professional fees. At Fiera’s insistence, these engagements required SaltWire to provide confidential information and engage in discussions with other media players in the industry,” said Lever.
“The professional fees from the engagements required by Fiera amount to $546,000.”
Mark Lever is 50 per cent owner of The Halifax Herald and The SaltWire Network. His spouse Sarah Dennis is a fourth generation Dennis to run the news empire, and holds 50 per cent of the companies. Halifax Herald photo
