May 16 – Standard & Poor’s Ratings Services said today that Dallas, Texas-based print and digital marketing services provider SuperMedia Inc.’s
(CCC+/Negative/–) latest subpar debt repurchase does not affect our current corporate credit rating on the company. Our issue-level rating on the company’s term loan due 2015 remains at ‘D’. Per Standard & Poor’s criteria, the ability to do ongoing subpar repurchases of this issue is tantamount to a default. We expect the issue to remain at this rating level until the company no longer has the authorization to buy back debt below par.
We believe SuperMedia’s liquidity and adjusted debt leverage will not change materially as a result of this transaction, as the company is using $33 million of cash and must keep at least $50 million in cash as per its amendment dated Nov. 8, 2011. Lease- and pension-adjusted leverage, pro forma for the subpar debt repurchase, decreased to 3.0x for the 12 months ended Mar. 31, 2012, from 3.9x over the same period last year. We anticipate that the company will continue to repurchase debt in the open market below par with roughly 32.5% of its free cash flow, as defined in the credit agreement. The agreement stipulates that SuperMedia must repay 67.5% of the debt at par. We believe the company will need to continue repurchasing debt and stem revenue declines in order to be able to refinance the credit facility by Dec. 31, 2015, which we regard as an unlikely scenario.
TEXT-S&P cuts Dex One notes rating to ‘D’ from ‘CC’
REUTERS — 04/23/12
(The following statement was released by the rating agency)
April 23 - Standard & Poor's Ratings Services today lowered its issue-level
rating on Dex One Corp.'s (Symbol :DEXO
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) subordinated $300 million notes due 2017 to 'D' from 'CC', reflecting the company's announcement that it repurchased $98 million face value of the notes at a price of 27% of par. These subpar buybacks are tantamount to default under our criteria. The recovery rating remains at '6', indicating our expectation of negligible recovery (0% to 10%) for noteholders in the event of a payment default. The 'CCC' corporate credit rating on the company and the negative outlook remain unchanged. The 'CCC' corporate credit rating reflects our view that Dex One's (Symbol :DEXO
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) business will remain under pressure, given the unfavorable outlook for print directory advertising. We view the company's rising debt leverage, low debt trading levels, weak operating outlook, and steadily declining discretionary cash flow as indications of financial distress. The term loan and subordinated notes are trading at a significant discount to their par values, providing the company an economic incentive to pursue ongoing subpar buybacks, which would be tantamount to default under our criteria. We continue to assess the company's financial risk profile as "highly leveraged," based on our criteria and on the company's steadily declining cash flows as it confronts sizable maturities. We regard the company's business risk profile as "vulnerable," based on significant risks of continued structural and cyclical decline in the print directory sector. Structural risks include increased competition from online and other distribution channels, as small business advertising expands across a greater number of marketing channels. Under our base-case scenario, we expect Dex One's (Symbol :DEXO
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) 2012 revenues and EBITDA to show a mid-teens percentage and high-teens to low-20% rate decline, respectively, reflecting ongoing advertising declines due to a continued shift toward more efficient and lower-cost digital advertising platforms. Despite good growth in online bookings, which amount to about 20% of total bookings, we believe that total bookings will continue to decline at a mid-teens percent rate over the near term. We do not expect digital booking growth to offset print booking declines, because Dex One (Symbol :DEXO
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) has not been able to convert a significant portion of its print customer relationships into digital customers, even though some have bought print-and-digital packages. As a result, we expect the EBITDA margin to deteriorate at an increasing rate, leverage to continue to rise, and discretionary cash flow to decline further. Our negative outlook reflects our expectation that Dex One's (Symbol :DEXO
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) declining
business fundamentals could hinder refinancing of its 2014 debt maturity. We
could also lower the rating if we become convinced that the company is going
to incur a cash default or file for Chapter 11 bankruptcy protection. Although
a remote possibility at this time, a revision of the outlook to stable would
likely involve a resumption of organic revenue growth and the company
addressing 2014 maturities. We believe this scenario would entail an
substantial increase in digital revenue, as we expect that trends in print
advertising will continue to be under significant structural pressure.
RELATED CRITERIA AND RESEARCH
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
RATINGS LIST
Dex One Corp. (Symbol :DEXO
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)
Corporate Credit Rating CCC/Negative/--
Downgraded; Recovery Rating Unchanged
To From
Dex One Corp.
Subordinated D CC
Recovery Rating 6 6
A Japanese-language version of this media release is available on Standard &
Poor's Research Online at www.researchonline.jp, or via CreditWire Japan on
Bloomberg Professional at SPCJ. Complete ratings information is available
to subscribers of RatingsDirect on the Global Credit Portal at
www.globalcreditportal.com. All ratings affected by this rating action can be
found on Standard & Poor's public Web site at www.standardandpoors.com. Use
the Ratings search box located in the left column.
EXT-S&P cuts Yellow Media to ‘CCC’
Thu May 10, 2012 3:50pm EDT
Overview
-- The prospect of near-term debt restructuring at Montreal-based Yellow
Media Inc. has increased, in Standard & Poor's opinion.
-- As a result, we are lowering our long-term corporate rating on Yellow
Media to 'CCC' from 'B-'.
-- We are also lowering our issue-level rating on the company's senior
debt to 'CCC' from 'B-' and lowering our rating on the subordinated debt to
'CC' from 'CCC'; the recovery ratings on these debt obligations are unchanged.
-- Finally, we are keeping all the ratings on Yellow Media on
CreditWatch, where they had been placed with negative implications Dec. 5,
2011.
-- The CreditWatch listing reflects our concern about the increased
likelihood of near-term debt restructure, which is aimed at aligning the
company's capital structure to deteriorating operations as well as addressing
the refinancing of sizable debt maturities in 2013 and beyond.
Rating Action
On May 10, 2012, Standard & Poor's Ratings Services lowered its long-term
corporate credit rating on Montreal-based Yellow Media Inc. by two notches to
'CCC' from 'B-'.
At the same time, Standard & Poor's lowered its issue-level rating on the
company's senior unsecured debt to 'CCC' (the same as the corporate credit
rating on Yellow Media) from 'B-'. The recovery rating on the debt is
unchanged at '4', indicating our expectation of average (30%-50%) recovery in
the event of a default. Standard & Poor's also lowered its issue-level rating
on Yellow Media's subordinated debt to 'CC' (two notches below the corporate
credit rating on the company) from 'CCC'. The recovery rating on this debt is
unchanged at '6', indicating our expectation of negligible (0%-10%) recovery
in a default situation.
In addition, we lowered the ratings on the company's preferred shares
outstanding to 'D' (default) from 'C', owing to the nonpayment of dividends on
these securities when due.
Finally, we are keeping all our ratings on the company on CreditWatch, where
they were placed with negative implications Dec. 5, 2011. At March 31, 2012,
the company had about C$2 billion of gross debt and about C$732 million of
preferred shares outstanding.
Rationale
The downgrade primarily reflects Yellow Media's heightened risk of a near-term
debt restructure given the significant refinancing risk for its debt
maturities in 2013 and beyond, as well as our view that the company's current
capital structure is unsustainable against the backdrop of deteriorating
revenue and cash flow trends. For the quarter ended March 31, 2012, Yellow
Media's normalized revenue decline accelerated to 13.3% (17.3% on a reported
basis) on a year-over-year basis, driving a 21.3% (23.2%) drop in normalized
EBITDA; normalized revenue and EBITDA exclude the impact of the divested
LesPAC operations as well as contribution from Canpages and YPG USA. While
print revenue erosion (which accelerated to about 19% year-over-year) was
fairly consistent with our recently lowered expectations, growth in organic
online revenue (7.8%) was substantially weaker than our assumption of a
percent growth in the mid-to-high teens and well below the 22% that the
company posted in fourth-quarter 2011. The sharp slowdown of online revenue
growth at Yellow Media is of particular concern to us since market share gain
in this segment is critical to the company's long-term viability. Also, key
operating metrics such as customer count, customer renewal rates, and average
revenue per advertiser, have weakened notably relative to previous quarters.
Furthermore, in its quarterly reporting Yellow Media management cautioned that
in the most recent quarter it had observed changes in revenue trends that led
it to believe that online revenue growth would be slower than previously
expected and print declines would be steeper based on a more rapid and
enduring change than expected in late-2011.
Although we still believe that Yellow Media should be able to generate
positive discretionary cash flow, at least in the next two years, we note that
internal cash flow will not be sufficient to repay the sizable amount of debt
maturing over this period. Moreover, given poor access to capital markets, we
also feel that the company will be challenged to refinance its debt
obligations. Yellow Media notes that its board of directors continues to
consider refinancing options with an objective of completing any transaction
or transactions within the current fiscal year. Furthermore, in its
first-quarter 2012 conference call with investors, the company noted that it
has been approached by certain bondholders with a restructuring plan, which it
is now reviewing. In our opinion, these corporate actions increase the
likelihood of debt restructure in the near term and our ratings reflect this
risk.
The ratings incorporate our reassessment of the company's business risk
profile as "vulnerable" (largely reflecting the acceleration of revenue and
cash flow declines) and a financial risk profile of "highly leveraged." We
view the company's liquidity as "weak" as per our definitions, primarily owing
to substantial risks with regard to the company's ability to repay its 2013
debt maturities.
Yellow Media is a holding company that owns Yellow Pages Group (YPG) and
Canpages Inc. YPG is Canada's largest telephone directories publisher and
owner and operator of the leading online advertising properties in Canada.
Since 2010, Yellow Media has also operated Canpages, including Canpages.ca, a
Canadian national online directory for local business and residential
searches. The company also provides national digital advertising through
Mediative--a digital advertising and marketing solutions provider to national
agencies and advertisers.
Recovery analysis
For the complete recovery analysis, see the recovery report on Yellow Media to
be published on RatingsDirect on the Global Credit Portal following this
report.
CreditWatch
The company remains on CreditWatch negative. This CreditWatch placement
indicates that we could either affirm or lower the ratings on Yellow Media by
one or more notches in the near future. Standard & Poor's will likely resolve
this CreditWatch once it has had an opportunity to fully evaluate the measures
company management is taking to address its debt maturities.
Related Criteria And Research
-- Methodology and Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Methodology and Assumptions on Risks in The
Advertising Industry, Aug. 18, 2009
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Ratings List
Yellow Media Inc.
Ratings Lowered And Remaining On CreditWatch/Recovery Ratings Unchanged
To From
Corporate credit rating CCC/Watch Neg/-- B-/Watch Neg/--
Senior unsecured debt CCC/Watch Neg B-/Watch Neg
Recovery rating 4 4
Subordinated debt CC/Watch Neg CCC/Watch Neg
Recovery rating 6 6
Preferred shares D C/Watch Neg
(New York Ratings Team)