BCE Inc. has had a lawsuit filed against it by several Canadian banking institutions over a loan of US$1.25 billion to subsidiary Teleglobe Inc. In the suit, filed last month in the Ontario Superior Court of Justice, lenders are seeking US$1.19 billion in damages.
Don Doucette, a Montreal-based senior director of communications with BCE, stated, “The lawsuit will not impact our business plan or on our ability to execute that business plan.”
In a statement of claim filed with the court, the lenders include all of the big five Canadian banks (Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, The Bank of Nova Scotia, The Toronto-Dominion Bank), as well as National Bank of Canada. Four of the big five are on the hook for just over eight per cent of the total loan, the largest share of any of the lenders. Toronto-Dominion’s share is 7.2 per cent while National Bank’s share is almost seven per cent.
Despite the large number and prominence of the plaintiffs involved in the suit, one analyst feels it will not have a negative effect on BCE’s business.
“The debenture holders have every right to seek relief,” said Surtees, a senior telecom analyst with IDC Canada Ltd. in Toronto. “It’s a distracting inconvenience, but at the end of the day there are bigger issues [BCE has] to deal with.”
Though he feels that the financial institutions have every right to sue, Surtees doesn’t give them much chance of winning.
The lawsuit is far-reaching, involving financial institutions outside Canada, including JP Morgan Chase Bank in the U.S. and ABN AMRO Bank N.V. in the Netherlands.
The Canadian banks were referring all inquiries to law firm Goodmans LLP in Toronto.
BCE is the country’s largest communications company, with 23 million customer connections through the telephone, wireless, data/Internet and satellite services. The company owns a majority stake in Bell Canada and Bell Globemedia, whose assets include The Globe and Mail newspaper and the CTV television network.
In a press release, BCE said it “denies any liability to any creditor of Teleglobe and its subsidiaries, and strongly believes that the claims contained in the lawsuit are without merit or foundation. BCE intends to take all necessary steps to vigorously defend its position to the fullest extent possible.”
Teleglobe is currently under bankruptcy protection and a potential buyer is being sought.
To compound its problems, BCE last month had its credit rating knocked down to Baa1 by U.S. debt-rating agency Moody’s Investors Service Inc., just three grades above junk or non-investment grade. Moody’s said it was worried about the added debt BCE was taking on to buy back 20 per cent ownership of subsidiary Bell Canada.
