Detailed information on Yellow Pages Group is likely to be distributed to potential bidders for the heavily indebted directories group within six to eight weeks.
In the meantime Interest.co.nz understands Yellow Pages’ banks, led by the Bank of New Zealand, have extended a standstill agreement, which was due to expire on May 31, on the group’s interest payments until early July and work on the group's capital structure continues.
Bought through a leveraged buyout by Hong Kong-based Unitas Capital, formerly CCMP Capital Asia, and Canada’s Ontario Teachers’ Pension Plan for NZ$2.24 billion in March 2007, Yellow Pages had NZ$1.72 billion of debt on its balance sheet as of June 30, 2009. That’s equivalent to more than 10 times its annual earnings before interest, tax, depreciation and amortisation (ebitda).
Under its existing owners Yellow Pages needed to keep lifting its earnings, which are now in decline, to avoid breaching its banking convents. The business last year produced ebitda of NZ$162.7 million and is said to be heading this year, on a run rate basis whereby current results are extrapolated over a year, towards NZ$130 million to NZ$140 million – a drop of up to 20%.
A prospectus for Yellow Pages’ ultimately canceled NZ$300 million 2007 retail bond offer noted: “A breach of the financial covenants is a senior event of default and the senior participants may, at any time while the breach occurs, cancel any advance or the senior facilities in full or demand payment of the outstanding principal and all other secured money owing to the senior finance parties.”
The holders of Yellow Pages NZ$1.175 billion senior debt facility are therefore in the driver's seat and investment bank Goldman Sachs JBWere, which advised Telecom on its 2007 sale of the business, was hired by the banks to once again seek a buyer for Yellow Pages last month. The senior debt holders include lead banker the BNZ, ANZ, Westpac, Deutsche Bank, Credit Agricole Corporate and Investment Bank (formerly Calyon), Barclays, Macquarie Group, Allied Irish Banks and the Royal Bank of Scotland.
Goldman is expected to circulate an information memorandum within six to eight weeks to potential buyers. International private equity funds, perhaps including distressed asset buyers such as Cerberus Capital Management and CVC Capital Partners, and other directories business owners are seen as potential bidders. The primary task for Goldman is likely to be to get back as much of the senior debt as possible given Yellow Pages is expected to be worth less than the NZ$1.175 billion owed to senior debt holders in today’s market.
That leaves subordinated debt holders, who hold the balance of Yellow Pages' about NZ$1.72 billion of debt, potentially facing complete loss as do its shareholders.
The company's subordinated debt facilities include a NZ$315 million loan and a ‘Payment in Kind’ facility of NZ$228 million. Holders of the subordinated loans included Barclays Capital, ABN Amro and Deutsche Bank. They unsuccessfully tried to offload NZ$300 million of this through the 2007 retail bond issue that was initially halved and then pulled.
* This article was first published this morning in our paid subscriber email for bank executives, regulators and other industry experts. Subscribe here or email bernard.hickey@interest.co.nz
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