Montreal: Industry observers say Telescene Film Group may well stave off defaulting into bankruptcy. When the interests of creditors, including banks owed $84 million, are taken into account, the company is arguably better off alive than dead.

Telescene’s petition for bankruptcy protection has given it a stay of 31 days through to early January, during which time it will ‘try to optimize the value for the creditors and ultimately shareholders,’ says Errol Glasser, a director with Telescene. The stay granted by the court can be extended as determined by the court.

Glasser says trustee Ernst & Young does not have control of all company assets, adding, ‘but we think that’s just a matter of time.’

‘The initial action was to protect ourselves from creditors and that is what the filing does,’ he says. ‘Within the subsequent period the hope is to develop a plan, an offer of compromise with creditors, that will allow the company to realize its highest possible value for everybody. We now have a protective umbrella over us that allows us to work without worrying every 30 seconds.’

While the banks, including the main creditors TD Bank and Bank of Luxembourg, can’t take action under the protection provision, Telescene will automatically default into bankruptcy without the agreement of its creditors.

In its last reported quarter, Telescene declared a net loss of $57.9 million on a write-down of receivables and library assets of $67 million. Debt stands at $98 million and includes $84 million owed to the banks and another $12 million to $15 million in unsecured debts.

Glasser wouldn’t reveal the value of assets as stated in an independent appraisal done earlier this year, but says ‘it certainly showed a value well in excess of what we have on the books.’

Susan Reid, an equity analyst with Research Capital Corp. in Montreal, says program rights held by Telescene may not be worth $73.4 million, the figure the company last reported as investment in projects and distribution, its capitalized production costs.

According to Reid’s assessment, ‘the assets of the company are exceeded by the liabilities at this point, and the company’s main asset is its pool of tax losses.’

She says Telescene has total net losses of $39 million, with some $20 million in refundable government tax credits on the books. Reid says the company’s balance sheet makes for ‘a very ugly picture,’ and there has been a pattern of ‘over-projected revenue stream.’

Current production, Live Through This and the second season of Sir Arthur Conan Doyle’s Lost World, have been financed separately.

Still, the final chapter to this most discouraging industry story – yet another blow to international content production in Montreal, following the debacle at Cinar and the retrenchment at TVA International (the former Motion International) – is yet to be written.

The banks may not wish to pursue a fire sale, and as one well-placed observer notes, ‘They [the producers at Telescene] have a track record of producing good programs. They just have to do a better job in their marketing and distribution strategy. It may well be in the interests of the banks to keep all options open, and keep the company running.’ *

Leo Rice-Barker

-www.telescene.ca