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Wednesday, August 15, 2012

Yellow Media lenders want debt-cutting plan withdrawn after solid Q2 results

Yellow Media lenders want debt-cutting plan withdrawn after solid Q2 results
TORONTO — Lenders to Yellow Media Inc. are stepping up calls for the directory publisher to withdraw its proposed plan to cut its $1.8-billion debt after seeing in the company’s second-quarter results that it still has “significant cash flows.”
Yellow Media has announced a plan to cut its debt to $850 million from about $1.8 billion as the struggling company continues its transition to an online company. It has said it will use credit facilities, debentures and cash in the recapitalization transaction.

But McMillan LLP, counsel for the syndicate said Tuesday the lenders think it would be best for the company to withdraw its proposed restructuring plan under the Canada Business Corporations Act and instead enter further talks with stakeholders.
“The syndicate is of the view that certain aspects of the proposed plan can be improved upon for stakeholders,” the firm said in a statement.
“Implementation of the company’s current plan is not urgent. The company has disclosed that it does not project any imminent cash shortfall.”
In its second-quarter earnings statement last week, the company said cash flow rose to $375.5 million from $87.3 million during the year-ago quarter.
However, McMillan said that the company did not include cash flow forecasts in the plan filed with the court earlier this month.
“The company’s future cash flow forecasts should be disclosed to affected stakeholders so that they can better assess the merits of the Company’s proposed plan.”
The company’s lenders were owed $369 million plus interest by Yellow Media as of last Sept. 28.
Led by the Bank of Nova Scotia, the lenders are Canada’s Big Six banks — the Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank, Royal Bank and Toronto-Dominion — plus the Caisse Centrale Desjardins.
Under Yellow’s plan, the banks would receive shares, bonds and cash in exchange for their debt.
McMillan said the lenders want to work with other stakeholders “on a more level informational playing field” to develop a scheme that would allow the company to pursue its business plan, while still creating value for senior creditors.
“Such a plan could offer junior creditors and equity holders an opportunity to retain a material stake in the company with upside in the future, it said.
Last week, a Quebec judge postponed making any decision on the effort by creditors until a Sept. 10 fairness hearing.
The lenders want the court to declare that Yellow Media’s credit agreement with them does not constitute a “security” within the meaning of the Canada Business Corporations Act.
They have accused Yellow of acting without first consulting them and not establishing it faced a “state of urgency.”
The company had a $67.7-million, or nine cents per share, profit in the second quarter, compared with a year-earlier loss of five cents per share.
A number of factors contributed to the improvement from last year including lower operating costs, reduced restructuring costs and a smaller provision for income taxes.
The year-earlier loss in the second quarter of 2011 was $20.7 million if only Yellow Media’s continuing operations are counted or $14.2 million if a profit from discontinued operations is included.
The company sold its Trader subsidiary last year in a $745 million deal that closed in the third quarter of fiscal 2011. It also sold the LesPac classified ad website to e-commerce firm Mediagrif Interactive Technologies Inc. in November.
Yellow Media’s revenue in the second quarter ended June 30 fell 16.4 per cent to $286.5 million from $342.7 million a year earlier, mainly due to lower print revenues and the divestitures.

Like many companies in the communications and publishing sector, Yellow Pages has been hit hard by changes in consumer behaviour as Internet services dominate the information world.
Yellow Media has been transitioning to an Internet company for the last few years.

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