Banks to stay with Yellow Pages after declining to sell at knock down price

Heavily indebted Yellow Pages Group has been taken off the block with the directories firm's banks deciding to try and tough it out rather than sell to recoup about 30 cents in the dollar.

(Update adds further detail).

In a statement the company said its banking syndicate, led by BNZ, will now look to complete a debt restructure.

With debts of at least NZ$1.7 billion following its heavily leveraged purchase from Telecom three and a half years ago and falling earnings breaching its banking covenants, Yellow Pages has been at the mercy of its banks for several months.

Interest.co.nz understands between 30 and 40 parties hold the debt, with some now held by hedge funds. Although private equity parties had expressed indicative interest in buying Yellow Pages, the banks would only have been likely to recover about 30 cents in the dollar, interest.co.nz was told. That suggests offers worth less than a quarter of the NZ$2.2 billion Hong Kong-based Unitas Capital (formerly CCMP Capital Asia) and Canada’s Ontario Teachers’ Pension Plan paid Telecom for the business in March 2007.

As of its June 30 year end last year, Yellow Pages' debts included a senior debt facility of about NZ$1.275 billion including working capital and capital expenditure facilities, each valued at about NZ$50 million. The senior debt holders include 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. The working capital facility is provided by ANZ and Westpac.

The company also has a subordinated debt facility worth about NZ$315 million and a ‘Payment in Kind’ facility of about NZ$228 million. Providers of the subordinated loans included Barclays Capital, ABN Amro and Deutsche Bank.

A standstill arrangement in place covering interest payments on the group's debt has been in place for several months. Yellow Pages made interest payments of NZ$154.3 million in the June 2009 year.

Goldman Sachs, which also advised Telecom on its blockbuster sale in 2007, was appointed earlier this year to again try and sell the business.

Bidders were offered a stapled financing package from a group of banks including YPG's existing senior debt holders. This five year facility could've helped any buyer fund the deal through a loan worth up to five times the group's forecast earnings before interest, tax, depreciation and amortisation (ebitda).

Yellow Pages was forecasting ebitda of about NZ$133 million in the year to June 2011, down from about NZ$157 million in the June 2010 year. However, interest.co.nz was told its operating performance has been declining since March.

Read the company's statement below:

It was announced at a meeting today that owners of the Yellow Pages Group®, 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, have discontinued the process to consider offers to purchase the company.

Whilst there were a range of interested parties, the Yellow Pages Group® shareholders, in conjunction with the banking syndicate, have come to the view that they won’t be pursued any further at this time.

A statement issued by the company today said that the current economic climate is not well suited to large scale merger and acquisition activity and that as a result the expectations of the stakeholders in regard to value are unlikely to be met in the current market.

The banking syndicate will now look to complete its already advanced plans to restructure the debt and intend to take a long term view as owners of the business.

Yellow®’s CEO, Bruce Cotterill, said it was good to have some clarity after the uncertainty associated with the sale process and the related media speculation.

“The banking syndicate has been working hard to achieve an outcome that will take Yellow® into the future. We look forward to working with them to finalise the debt restructure and move forward.

“There are a number of extremely positive initiatives being developed within the company at present, which will ensure our success in the next few years. We are fortunate to have had a very supportive relationship with our banking syndicate who have enabled that to happen.”