R.H. Donnelley trims bank debt, buys notes during Q3; unit gets waiver to prepay term loan

By Jennifer Lanning Drey

Portland, Ore., Oct. 23 - R.H. Donnelley Corp. reduced net debt by $155 million during the third quarter after repaying $35 million of bank debt at par and repurchasing $187 million principal value of notes in the open market, Steven Blondy, R.H. Donnelley's chief financial officer, said Thursday during the company's third-quarter earnings call.

The bond buyback included R.H. Donnelley Corp. bonds in all five series issued, with the majority being the 2013 maturities, he said.

The notes were purchased at an average price of 49% of face value.

Blondy said the company now expects year-end net debt to be below $9.50 billion.

At Sept. 30, net debt stood at $9.56 billion.

"We remain focused on three key financial priorities - disciplined cost management, investing in critical growth in initiatives and reducing debt," Blondy said.

"That should allow us to weather the economic storm and be well-positioned to grow once the market recovers."

R.H. Donnelley has $135 million of required debt repayments through the end of 2009.

"In the meantime, our strong cash flow and our full $365 million revolver capacity provide ample liquidity," Blondy said.

Third-quarter free cash flow was $108 million and included cash flow from operations of $110 million, capital expenditures of $17 million and $15 million of other adjustments.

The company had $60.8 million of cash and cash equivalents at Sept. 30.

Credit facility waiver

R.H. Donnelley also announced Thursday that its wholly owned subsidiary, R.H. Donnelley Inc., obtained a waiver under its senior secured credit facility to permit voluntary prepayments of its term loan D-1 and term loan D-2 at a discount to their principal amounts.

During the call, Blondy said the waiver is for a period of 270 days, and the company expects to hold a Dutch tender offer in a series of increments in connection with the bank debt.

The CFO said he was not prepared to comment on a potential kick-off date for the Dutch tender offer.

Sales down, guidance updated

R.H. Donnelley also reported Thursday that third-quarter advertising sales declined by 8.3%. The decline was expected; however, early fourth-quarter results show advertising sales trending toward worse-than-previously expected levels.

As a result, the company said it expects full-year ad sales, adjusted EBITDA and adjusted free cash flow to be at the low end of its previously announced guidance.

Ad sales are now expected to decline 8%, while the company projects it will post full-year adjusted EBITDA of $1.4 billion and full-year adjusted free cash flow of $475 million.

"We're seeing weakness in all markets, virtually across all business categories and among local and national advertisers of all sizes," David Swanson, chief executive officer of R.H. Donnelley, said during the call.

In response, the company is working to manage expenses and improve productivity and efficiency in an effort to adapt to the current environment.

In spite of the pressures, however, R.H. Donnelley will remain committed to its strategy of broadening and improving its advertising platforms, Swanson said.

R.H. Donnelley reported third-quarter adjusted EBITDA of $334 million, compared with adjusted EBITDA of $362 million for the comparable period in the prior year.

R.H. Donnelley is a Yellow Pages and online local commercial search company based in Cary, N.C.

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