http://divestor.com/2012/03/27/yellow-media-alive-for-how-much-longer/#comments
I notice that Yellow Media did not announce it was suspending interest payments on its convertible debentures (TSX: YLO.DB.A). If they would have done so it would have guaranteed them going into creditor protection.
They have about 11 months to figure out a solution to their imminent debt situation before they will go into default. The medium term notes (which are equal in level to the bank debt in seniority) trade at around 50 cents on the ask at present. The convertible debentures (junior to the MTNs and bank debt) are at about 12 cents on the dollar, while preferred shares are at about 3 cents on the dollar.
The logical investment conclusion is to buy the MTNs if you believe the entity has value after restructuring, or buy the preferred shares if you believe there will be a hugely messy process but not something that wipes out the preferred shareholders. The “middle ground” debentures will probably profit less than the preferred shareholders if there is some sort of recovery.
5 THOUGHTS ON “YELLOW MEDIA – ALIVE FOR HOW MUCH LONGER?”
Presuming Bank Debt, MTN and/or Convertible Debt take a haircut, I’m sure they won’t leave much on the table for Common or Preferred. I think Convertible will recover much more than Perferred… sure Perferred is a lot cheaper and returns could be a lot higher, but it’s really at the mercy of other stake holders.
In the Supplemental disclosure (P.12) to the Q4 financial statements, analysts estimates of 2012 EBITDA are published.
http://www.ypg.com/images/ckeditor/files/2011_Q4_SuppDisc.pdf
The low estimate is $558 million from which $110 million for interest, $125 million for income taxes and $100 million for required payments on the non revolving line of credit are subtracted leaving about $225 million available for business expansion or debt buybacks. Key item to notice is that Yellow Media remains profitable and is paying income taxes. If Superior Plus can renew with minor reduction Bank credit facilities why does the market not expect the same for Yellow Media?
“SUPERIOR PLUS CORP. EXTENDS ITS SYNDICATED CREDIT FACILITY
Superior Plus Corp.’s wholly owned subsidiaries, Superior Plus LP, Superior Plus US Financing Inc. and Comercial E Industrial ERCO (Chile) Ltda., have completed an extension of their syndicated credit facility with eight lenders. The size of the facility was reduced to $570-million from $615-million. The syndicated credit facility was reduced to reflect Superior’s anticipated credit requirements as a result of Superior’s continuing debt reduction plan. The secured revolving credit facility matures on June 27, 2015, and can be expanded up to $750-million. Financial covenant ratios were unchanged, with consolidated secured debt to consolidated earnings before interest, taxes, depreciation and amortization ratio, and consolidated debt to consolidated EBITDA ratio of 3.0 times and 5.0 times, respectively.”
The simple answer is that Superior Plus is in an industry that isn’t being annihilated through technological change.
Yes, the print directory business is declining at a predictable rate, BIA Kelsey, Local Search Association and the relatively few players in the world directory industry have all given guidance on the decline. But what about the growing side of the Local Search business, why is it that Google has partnered with Yellow Media in Canada and others world wide. Is it realistic to assume that Google with 300 employees in Canada can meet the needs of SME’s in Canada? Mediative, owned by YPG is one example of this growing business.
http://www.mediative.ca/about
Yell Group in the UK and DexOne in the US have been successful in buying back debt at cents on the dollar, YPG was expressly permitted in the September bank line reorganization to do the same.
How do you get 11 months before they go into default? Are you talking about Feb 2013 when the LOC’s are due? Remember they pulled 239 million out of the LOC and are sitting on it in cash (Total cash at Feb 9 was 280 million). The NRT is now down to 155 million (since we didn’t hear contrary I assume they made their 25 million payment on April 1 or 2). They don’t need to spend the 239 million on capex (as far as we know they are still cash flow positive) and they cannot buy back any debt. That leaves 3 more 25 million payments and an 80 million balloon payment. So for the year from Feb 9 2012 to Feb 2013 (don’t have the exact date) they need to make another 115 million. Their Free Cash flow would have to drop from 337 million last year to 115 million to default or a 66% drop in FCF. The next payment is 125 million in June and the next is 130 million in December. So overall for them to default anytime to the end of 2013 they have to fall below 185 million for 2012 and 2013. That would be a 45% decline in FCF from 2011 to 2012 (didn’t scale to 2013 but I think I made my Point). So unless the bottom really falls out then there appears to be no trouble until 2014. Perhaps my math is wrong or my assumptions are wrong or they will surprise us once again negatively. Feel free to correct any points as I am not trying to defend them just trying to look at the facts as are known. Also used FCF not EBITDA and would be happy to elaborate on print declines vs. online increases modelling.