Chapter 11 for Yellow Pages giant


We wonder, did R.H. Donnelley look in the Yellow Pages under “attorney – bankruptcy” to find their lawyer? The company’s pre-packaged Chapter 11 filing in a Delaware federal bankruptcy court is designed to reduce its debt by $6.4 billion.

“Our growth-through-acquisition strategy never anticipated the cataclysmic collapse of the U.S. economy and the local advertising market. As a result of these developments, earlier this year we began negotiating with our lenders to restructure our debt and provide the company with a more sustainable capital structure that reflects the current economic realities,” said David C. Swanson, Chairman and CEO of R.H. Donnelley, as he announced that the company had filed Chapter 11.

R.H. Donnelley said it has reached an agreement in principle with key creditors on the terms of a plan of reorganization that proposes to reduce debt by approximately $6.4 billion, eliminate approximately $500 million in annual interest expense and extend the company’s bank maturities out to 2014.

Throughout the restructuring process, the company said it will be conducting “business as usual” and does not anticipate any interruptions in services. The Yellow Pages publisher said it anticipates that more than $300 million of cash on hand, as well as projected positive cash flow from operations, will be more than sufficient to fund its operations during the restructuring process, and therefore does not plan to seek debtor-in-possession (DIP) financing during the reorganization of its business.

Here are the key terms the company said are in its agreement with creditors:

— R.H. Donnelley would reduce its total debt by approximately $6.4 billion, including about $700 million of secured indebtedness;

— The approximately $6.0 billion of unsecured bond indebtedness would be exchanged for 100 percent of the equity in the restructured company and $300 million of unsecured notes issued by the company; all existing equity in the company would be extinguished;

— Total cash interest expense reduction of approximately $500 million annually

— Post-restructuring secured and consolidated debt of approximately $3.1 billion and $3.4 billion, respectively, which represents approximately 3.0x and 3.3x net secured and net consolidated leverage, respectively;

— Post-restructuring cash balance of approximately $125 million.
R.H. Donnelley filed a variety of customary first day motions with the court to enable it to continue business as usual during the restructuring. The motions include requests to continue paying employee wages and benefits as usual and to continue customer programs and guarantees. Serving as lead restructuring advisors for R.H. Donnelley are Lazard and Sidley Austin LLP.

RBR/TVBR observation: The lenders will get 100% of the equity, but is that really a good deal for them? Would you want to own a rapidly dying business with shrinking cash flow?