R.H. Donnelley chooses loans for SBC acquisition based on efficiency, flexibility

By Sara Rosenberg

New York, July 29 - R.H. Donnelley Corp. chose to use bank debt as opposed to high-yield bonds for the acquisition of SBC Communications Inc.'s directory business because of lower rates and prepayment abilities that loans afford, company officials said in a conference call Thursday.

"We looked at the possibility of financing part of this transaction in the bond market and concluded it was much more efficient for us to do it in the bank market. Bank term loan A, term loan B structure with the appropriate swaps in place gives us a lot of flexibility not only in terms of lower cost but also the ability to prepay without penalties," company officials said in the call.

As was previously reported, the company is scheduled to hold a bank meeting next week for its proposed $2.6 billion credit facility. JPMorgan and Bear Stearns are the lead banks on the equally underwritten deal, with JPMorgan listed on the left.

The facility will contain a revolver, a term loan A and a term loan B.

"We're basically amending our existing credit agreement to get this financing completed," officials said in the call.

Basically, the company is gaining $1.45 billion in incremental bank debt, extending the maturity of the term loan A and the term loan B by one year each, decreasing pricing on the term loan A to Libor plus 200 basis points from Libor plus 225 basis points and removing the fixed charges covenant, officials explained in the call.

The new credit agreement will contain three covenants, senior leverage, total leverage and interest coverage.

R.H. Donnelley is acquiring SBC's directory publishing business in Illinois and Northwest Indiana for $1.42 billion in cash. The transaction is expected to close in the third quarter subject to regulatory approval and certain closing conditions.

Following the acquisition, R.H. Donnelley expects to have pro forma 2004 consolidated adjusted revenue of about $1 billion and EBITDA of about $586 million, assuming a Jan. 1 close.

Total leverage immediately following the transaction will be about 5.8 times pro forma adjusted 2004 EBITDA.

"As far as the rating agencies, we have been talking to them. I don't have any news in terms of the ratings," officials added in the call.

R.H. Donnelley is a Cary, N.C., yellow pages publisher and directional media company.

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