Dex One, SuperMedia, lenders discuss proposed facility amendments

By Jennifer Chiou

New York, Sept. 18 - Dex One Corp. and SuperMedia Inc. management held a meeting on Tuesday to discuss proposed merger transactions, including amendments to their existing credit facilities, according to an 8-K filing with the Securities and Exchange Commission.

Along with representatives of their financial advisors, the companies conducted a meeting for the benefit of a steering committee of Dex Media East, Inc., Dex Media West, Inc., R.H. Donnelley Inc. and SuperMedia senior secured lenders to discuss the proposed amendments.

In their presentation of lender discussion material, Dex One and SuperMedia stated that their proposed merger and facility maturity extension to Dec. 31, 2016 allow both to improve cash flow and reduce leverage at their stand-alone prospects.

The merging companies said that the necessary amendments include a "modest" extension of maturity, resetting financial covenants to provide operating flexibility, a reduction in Dex One's mandatory amortization and a shift to a quarterly cash sweep and the ability to use the borrower's portion of cash flow in market-based tenders for debt.

Dex One and SuperMedia added tat all loans under the various credit agreements mature prior to the senior subordinated notes due 2017.

Other changes include an increase to the Libor spread for R.H. Donnelley and Dex West through the extension period, a Libor floor for Dex Media East lenders and an increased Libor spread for Dex East as well.

The companies specifically stated the following:

• The lenders at each credit silo receive more cumulative cash from interest, mandatory amortization and mandatory sweep under the proposed loan amendments than they would on a stand-alone basis;

• Despite distressed levels of both companies' debt, no proposed principal or interest reduction is part of the merger; and

• Significant operational and financial synergies can be used to efficiently deleverage.

In their overview, the companies said that the annual mandatory amortization would be adjusted, particularly to roughly $20 million for each Dex One credit silo.

Details of the proposed amendments can be found at www.supermedia.com or www.dexone.com under the "Investors" tab or by contacting SuperMedia's investor relations department (877 343-3272) or Dex's investor relations department (800 497-6329).

August conference call

SuperMedia president and chief executive officer Peter McDonald said during a conference call last month that the company is "mindful" of the change of control for its bonds.

He said that a process is in place to protect that, he said, so the company doesn't inadvertently lose some tax assets.

The entire $1.8 billion of tax attributes, including $1.1 billion of net operating loss carry-forwards, are expected to be preserved and to be available to offset income and generate cash flow, Dex One CEO Alfred Mockett said on the same call.

As reported, at the end of the second quarter, Dex One's debt was $2 billion, and SuperMedia's was $1.4 billion, said Mockett.

Expected benefits from the transaction include $150 million to $175 million of annual run rate cost synergies by 2015 as well as enhanced cash flow.

Transaction details

The merger has been approved by the companies' respective boards of directors.

Under the terms of the agreement, Dex One and SuperMedia shareholders will exchange their shares for shares in the new company, Dex Media. Dex One shareholders will receive 0.2 share for each Dex One share they own, and Super Media shareholders will receive 0.4386 share for each SuperMedia share they own.

Dex One shareholders are expected to own about 60% and SuperMedia shareholders are expected to own about 40% of the combined company once the transaction closes, which is expected to occur in the fourth quarter.

Dex Media will be led by Alan Schultz as chairman and McDonald. Mockett will lead Dex One through the transaction's close and then step down.

Dex One is a Cary, N.C.-based marketing services provider. SuperMedia is a Dallas-based directory publisher.

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