Took a look at their quarterly transcripts:
Dexo is on track and raised their guidance.
Spmd has a lot of the same language that we are seeing out of YLO.
Dexo’s presentation:
Spmd’s presentation:
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTQ3NDA2fENoaWxkSUQ9LTF8VHlwZT0z&t=1
Overall, these are in line with where I figured the industry would be. I don’t really expect much from this Q2 coming out of YLO this week. It’s pretty obvious to me that the banks were going to oppose this recapitalization plan, same as the convertible debentures.
“Banks and convertible debenture holders both argue they were treated unfairly by Yellow Media because they were not consulted before the restructuring plans were made public. The banks accuse the company of using “a divide and conquer strategy” by negotiating only with a small group of bondholders, and they want the process to start over.”
I am looking at this situation, you have three companies that are ridiculously cheap.
SPMD and DEXO are retiring debt at a discount.
YLO could retire debt at a discount but apparently prefers to give up if you follow their headlines. I think that this current recapitalization plan will be crashed and burned, a win for equity holders if you ask me.
Assuming that the deal falls through at the end of september, here is where yellow media sits:
$391M in cash
They owe $369M on their bank credit facilities in aggregate up to Q1 2013. So, this is covered by their cash.
So, in all reality, the banks argument that they should get 100% of their principle back is a sound argument.
Then, the next alleged shoe to drop is the preferred A shares. If the company doesn’t convert them or restructure, they go into default. If they convert them, then that’s fine and the obligation goes away.
Converting makes absolute sense.
So, you either have a restructure where the banks take 100% principle or a conversion of the A’s and no grand recapitalization plan.
If we are lucky, this recap plan is a ploy to get the banks to extend their credit agreement 2 years. I don’t feel particularly lucky, so we shall see.
Regardless. In any recap, all equity shares are worth more than their current market prices.
But, if the company is making $50M/quarter in free cash flow and can retire MTN’s at a discount to par, why wouldn’t they.
In the non-recapitalization scenerio, they have $130M due in 2013 Q3 and $125M due in 2013 Q4.
They can meet both of these obligations without recapitalizing at par value, but why would they when they could do it at much, much lower prices? AKA, when you go to the grocery store, why would you pay $100 for what they have price marked at $65?
You wouldn’t, unless you are stupid. Is yellow media management stupid? I do not think so.
My personal vote is that they DO NOT recapitalize and instead:
1. Retire the bank debt at par.
2. Convert the A’s.
3. Pay off the 2013 obligations.
Then, wouldn’t then be a better time to recapitalize? Why are we even entertaining this recapitalization now? Are you working in the best interest of shareholders?
Granted, it is easy to disregard your shareholders when you can’t find them because the equity position has gotten destroyed as a direct result of your own managerial actions governing this company. That said, there are incredible value investors getting on board here, and I strongly encourage you to work with this investor base and see where it takes you.
The Commons are worth $1+ in a few years if you can simply NOT do this recapitalization plan. If you do the recapitalization plan, they top out much lower.
That is why I am calling the plan, in aggregate, a reCRAPitalization plan.