Yell Group asks lenders to take a haircut


As it reported a 12% decline in revenues for the first half of its fiscal year, London-based Yell Group plc, which operates the Yellowbook directory business in the US, announced plans to restructure its debt. Moody’s Investors Service says the terms meet its definition of a default, so it has put Yell Group under review for possible downgrade.

“Following a covenant reset process that will require the approval of two-thirds of lenders by value, and which will be voted upon before 25 December 2011, Yell intends to use up to GBP [British Pounds] 108 million [$172 million] of cash to buy back some of its bank debt at high discounts to par via a reverse auction process. Moody’s understands that Yell’s debt has recently been trading at around 30% of par; and is likely to consider such purchases as a default,” the ratings agency stated.

“While such buybacks could slightly reduce Yell’s high leverage, Moody’s believes that the company’s capital structure will remain unsustainable, due to its heavy debt burden (GBP 2.8 billion as of September 30, 2011),” Moody’s said, adding that the company’s market capitalization has fallen to below GBP 100 million.

Moody’s said its evaluation will look at how much debt is repurchased and at how deep of a discount. Of course, that’s assuming the covenant reset is approved. “However should the covenant resets not be granted, the review will incorporate the increased likelihood of a covenant breach in early FY2012/13. Following such a breach, it is possible that a more extensive debt restructuring exercise could ensue,” said Moody’s.

Yell management has plans to get the company back on track, primarily by reversing the current mix of 75% print and 25% online revenues. But getting to 25% print and 75% online revenues carries “meaningful execution risks,” Moody’s noted. “With its strategy execution, Yell expects its revenues to turnaround in 2013, while EBITDA and cash flows are expected to return to growth only in 2015, which implies continued near-term pressure on Yell’s profitability, in Moody’s opinion.”

RBR-TVBR observation: As challenging as the recovery is for broadcasters and with no light at the end of the tunnel yet visible for newspapers, just remember that it could be worse – you could be in the Yellow Pages business. Not only are people less likely to use their product now that they have searchable online options, but some municipalities are trying to ban their unwanted books as litter. When’s the last time you looked in a Yellow Pages directory? We can’t remember either.