Yellow Media Inc.’s bid to recapitalize and fend off receivership while it executes a transition to digital has added a little shine to its faded stock.
Desjardins Capital Markets gave Yellow Media a boost Tuesday, upgrading the stock to hold-speculative from sell-speculative and turning up the share’s target price to 11 cents from 1 cent.
The directory company announced Monday it is launching a recapitalization plan to avoid bankruptcy.
If the company’s creditors agree to trade in debt for new equity, Yellow Media will buy itself time to unroll a digital strategy.
Desjardins said approval for the plan is likely, as it simplifies the company’s capital structure, but warned two major groups could block its passage.
The bank lending syndicate and medium-term note holders with maturities as early as 2013, may not be keen to getting the same treatment as holders with notes set to expire in 202o, Desjardins analyst Maher Yaghi wrote.
The two groups comprise roughly 35% of the company’s voting class. The recapitalization plan requires 66.66% of the vote to proceed.
“We currently believe that the chances of the restructuring going through are higher than the opposite; however, as we mentioned previously, the lending syndicate and some [medium-term holders] holders could have good reason to refuse the restructuring as planned,” wrote Mr. Yaghi.
Mr, Yaghi noted that shares could reach 18 cents if the plan is executed, but condemned the stock to “total value destruction” if restructuring falls through.
Following the announcement Monday, Yellow Media’s share price more than tripled to 8.5 cents.
Desjardins restricted its recommendation to event-driven investors, noting it remains weary of secular trends in the print industry.
“We do not believe the accelerated rate of deterioration will slow, given the causes include both a reduction in the rate of online growth coupled with an increase in the pace of decline in print revenue, which remains the company’s largest source of revenue,” Mr. Yaghi wrote.