Here is the spreadsheet link: Dex Media EV Forecast
Note that I believe that this forecast is pretty ugly. Basically what I intended to illustrate is that the companies have paid down around half their debt since 2010. Impressive. Even still, the market apparently does not care. Anyway, I expect that this trend of debt repayment shall continue to march forward. As this happens I think that the breakdown of the balance of the EV will begin transferring from the debt side to the equity side. I would also argue that there is a point in time at which the company would be “underleveraged” and that before they get to that point in time they take their cash flows and instead of paying down the debt instead begin to pay a portion out as dividends.
Some interesting metrics that I came across that summarizes the last 3 years of pre-merger Dex Media:
EV has gone from around $8B to $3.5B.
Run Rate EBITDA has gone from $1.86B to $1B
The DEBT has gone from $6.1B to $3.3B
Digital Revenues have gone from $0.25 to $0.5B (Extrapolated based on my estimates on SuperMedia’s Digital Business since they don’t disclose anything here).
Their present run rate of Revenue is $2.5B, they have 650,000 customers and 3,100 marketing consultants and managers.
This is what I do on saturday night apparently.
Below is a message board conversation:
you slightly misunderstand their cash formula, but the combined company, dex media, will have about $350M of free cash flow in 2013, and then about $450M of free cash flow each year 2014-2016. they will end up with around $1.8 billion in debt at the end of 2016 that will have to be addressed, and that’s as low as they can possibly get it unless something miraculous happens. if you look at page 39 of the lender presentation from december 6, as well as the entire presentation, there some excellent information there that will agree with what am saying. you can find this lender presentation in the 8-k filed on december 6.
this is why the “non crisis pricing” valuation that glen from seeking alpha used to obtain the $150 valuation is flawed. the combined company will not fall into a scenario that would justify that rationale by the end of 2016. yet another round of refi/amendment/prepack/something will be necessary by the end of 2016. this current prepack merely takes the heat off for a while.
what striked me odd about the “non crisis pricing approach” is that same guy has previously acknowledged that dex media will still have a debt issue that will have to be addressed by the end of 2016.
My response:
Great points!
Well put. What I am suggesting is that as the debt is paid down it will begin to trade at par when the debt markets think that the debt/ebitda multiple is “safer” and also the rate of revenue decline slows. At the point that the debt trades at par it can be refinanced.
The interesting thing about this situation is the dual ownership nature of it. A lot of the creditors have equity stakes due to the prior bankruptcies.
The answer is not a debt-free company. The company can obviously carry a certain portion of its enterprise value in debt and the question to be answered is, “What is the level of debt that is appropriate for Dex Media?” — well, we are moving in the right direction. If you figure that right now the debt is trading at $0.75 on the dollar. That means the market value of the debt going into a bankruptcy is $3211*75%=$2408M. On a run rate basis this is a debt level of around 2.4x the Run Rate EBITDA.
Considering the model has us coming out the end of 2016 with a DEBT/EBITDA of 2.2x which is less than the crisis DEBT/EBITDA it is my opinion that the DEBT will be trading at par.
I’m not even taking into consideration the bonus of subpar repurchases that we will likely see along the way. Also I think that the EBITDA and cash flows will be more robust than the companys’ joint forecasts.