Quebecor World Granted Bankruptcy Protection in U.S., Canada

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Researched by Industrial Info Resources (Sugar Land, Texas)-- Quebecor World Incorporated (NYSE:IQW) (Montreal, Quebec), a subsidiary of communications giant Quebecor Incorporated (Montreal), filed for and received bankruptcy protection in both the United States and Canada this week, allowing the company to borrow $1 billion from Credit Suisse Group (NYSE:CS) (Switzerland) and Morgan Stanley (NYSE:MS) (New York, New York) to cover operating expenses, including wages and benefits, while it develops a restructuring plan.

Now that emergency funding has been secured, the real battle begins as creditors, suppliers and other stakeholders in the company begin jockeying for position in the reorganization process. According to the preliminary report by the court-appointed monitor, Ernst & Young Global Limited (England), the company has over $100 million in trade payables that are overdue as well as hundreds of suppliers clamoring for past due payments. Some customers are threatening to cease doing business with the company unless letters of credit are provided. A short list of well known customers includes the "Harry Potter" franchise of books, "Time" and "Parade" magazines, and "Victoria's Secret" and "Williams-Sonoma" catalogues.

Part of the reorganization process will involve a close examination of Quebecor World's assets. This includes the more than 40 operational plants that the company maintains in the U.S. and Canada, some of which may be sold or closed as the reorganization process proceeds. In addition, Quebecor World currently has more than $120 million worth of capital and maintenance projects that had been scheduled to begin construction in the future, all of which are on indefinite hold during this process. The fate of the 28,000 Quebecor World employees worldwide is also up in the air at this point. Some of those jobs will no doubt have to be cut, if and when the company closes or sells off some of its operations, but at this early stage, how many is anyone's guess.

The printing business worldwide has been suffering over the last 20 years as the Internet has taken much of its business and eliminated the need for much of the traditional printed media. Capital spending in the printing and publishing sector has been at all-time lows for the last several years as the need for new facilities, as well as the upgrade or expansion of existing facilities has been almost nonexistent. Less then $900 million is spent annually in the sector on capital and maintenance project work in North America and the numbers have been consistently dropping each year.

The next two months will be telling for Quebecor World as the emergency financing it has gathered will only keep it operating for about that period of time. The printing giant is but the first of several printing companies that may face similar problems in the next five years unless new markets can be developed, which is unlikely. While there will almost always be a market for printed books, the magazine industry is on the decline and the catalog industry is diminishing fast. The ease and convenience of the internet has signaled the beginning of the end in this fight with Quebecor World being the first of the major powers to fall.

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