R.H. Donnelley increases financial flexibility through third-quarter actions

By Jennifer Lanning Drey

Portland, Ore., Oct. 25 - R.H. Donnelley Corp. enhanced its operating and financial flexibility while also extending debt maturities in the third quarter through the completion of $2.7 billion of refinancings, Steven M. Blondy, R.H. Donnelley's chief financial officer, said Thursday during the company's third-quarter earnings call.

Additional benefits of the quarter's refinancings include a simplified capital structure and lower average interest rates on $10 billion of debt, Blondy said.

"We successfully achieved our three goals in this refinancing sooner than expected and despite capital market turmoil, thanks to our strong cash flow profile and our strong track record," he said.

R.H. Donnelley reported $132 million in free cash flow for the quarter and is on track to achieve its full-year free cash flow guidance of $600 million, Blondy said. Year-to-date free cash flow was $409 million at the end of the quarter, and the company expects free cash flow to be boosted by lower cash interest payments in the fourth quarter.

Cash flow from operations was $156 million during the quarter.

The company also reaffirmed on Thursday its expectation that year-end net debt will come in at $9.9 billion, excluding a fair-value adjustment of $1 million.

Net debt at Sept. 30 was $10.18 billion, including the purchase accounting fair-value adjustment of $173 million.

R.H. Donnelly was active during the third quarter and early in the fourth quarter, offering an upsized $1 billion issue of 8 7/8% senior notes and then pricing a $500 million add-on to the issue less than two weeks later.

Proceeds were used to redeem $1.4 billion of outstanding bonds that had an average rate of 10 7/8% and to refinance $1 billion of the company's bank debt that had the most restrictive covenants, Blondy said.

R.H. Donnelley also said it closed Wednesday on the new $1.2 billion credit facility that will be used to refinance an existing facility held by subsidiary Dex Media East LLC.

The recent transactions complete the company's current refinancing program.

Along with announcing the company's quarterly results, R.H. Donnelley also announced Thursday that it will initiate a new dividend initiative related to its common stock beginning in the first quarter of 2008. The company anticipates the dividend payout to be approximately 25% of free cash flow.

The company said the dividend program will allow it to continue aggressively investing in strategic initiatives while de-levering at a sufficient pace to achieve its target leverage ratios.

"We know that our investors value a direct return on capital. We still have a significant amount of leverage and we believe that 25% is a responsible dividend payout ratio," Blondy said.

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

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