YELLOW MEDIA UNDER SIEGE
Bondholders move to take over phone directories publisher in debt-for-equity swap.
Yellow Media Inc.’ s bondholders are seeking to take over the phone directories publisher in a debt-for-equity swap that would push out existing shareholders.
Senior-ranking bondholders owed Us$1.4-billion organized a call last week to discuss a plan urging the company to seek a plan of arrangement, a court-ordered restructuring through the Canadian Business Corporations Act, according to two bondholders on the call. The people declined to be identified because the talks aren’t public.
“Management would be fools not to consider this,” said John O’connell, chief executive of Toronto-based Davis Rea Ltd., a holder of the bonds who wasn’t on the call. “The people who have the biggest vested interest in this company are thinking about ways to restructure it and that’s a positive outcome. I think the bondholders will wind up with most of the company.”
The move by senior bondholders to seize Yellow Media in exchange for writing down its debt is stemming declines in the value of the Montrealbased phone book company’s bonds, Mr. O’connell said. Yellow Media’s value has halved this year as the publisher tries to remake itself into an online business as customers eschew phone books in favour of smartphones and tablet computers.
Yellow Media’s $550-million of 5.25% notes due February 2016 have risen to 46¢ on the dollar from 38¢ a month ago. The company’s $300-million of 7.75% notes due in March 2020 have risen to 45¢ on the dollar from 38¢.
“This should give a floor to the bonds,” Mr. O’connell said. “We own the 2016 bonds and we’re quite pleased.”
Yellow Media spokesman André Leblanc didn’t respond to requests for comment yesterday. Ginette Maillé, the company’s chief financial officer, also didn’t respond to requests for comment.
“It increasingly looks like there will be some sort of com- promise with existing creditors,” said Chris Diceman, an analyst at DBRS Ltd., which downgraded its rating on Yellow Media to B (low) from B (high) this week.
Yellow Media is “evaluating alternatives to refinance maturities in 2012 and beyond” and hired the restructuring expert Bruce Robertson to the board, where he will head a committee to look at “financing options,” it said in a Feb. 9 statement. Debt totalling $2-billion begins to mature next year.
Mr. Diceman at DBRS said he wasn’t aware of the bondholder discussions. A recapitalization through CBCA could take less than six months and is cheaper and faster than formal bankruptcy, he said.
Bondholders would recover 30% to 50% in a default scenario, said Madhav Hari, lead analyst for Yellow Media at Stan-
Management would be fools not to consider this
dard & Poor’s in Toronto. S&P cut its assessment on Feb. 15 by three levels to B- from BB-.
Debt holders rank parripassu, or equally, to the company’s lenders led by Bank of Nova Scotia, which arranged a revolving credit line for $250million. Yellow Media drew $239-million of the loan in the first 40 days of the year, according to company filings. Scotiabank spokesman Joe Konecny declined to comment.
“It makes sense bondholders have formed a committee,” said Barry Allan, president of Toronto-based Marret Asset Management Inc., who doesn’t own Yellow Media’s bonds. “They need to protect themselves from the banks. At this stage, it’s a fight between the banks and the bondholders.”