Donnelley bond deal upsized to $925 million, pricing Tuesday; default cured

New York, Nov. 25 - R.H. Donnelley Corp. upsized its sale of junk bonds to $925 million from $750 million previously planned and narrowed price talk on the offering.

The deal is set to price Tuesday, according to a syndicate source.

The offering now includes $325 million of eight-year senior notes (B1/B+) talked at a yield of 8 7/8% to 9%. This portion was previously $300 million in size with talk of 9% to 9¼%. The notes are non-callable for four years. The $25 million was taken from the company's planned new bank financing and added to the bond side simply because the "high-yield market is on fire right now," a syndicate source explained.

In addition, the company is selling $600 million of 10-year senior subordinated notes (B2/B+), with talk at 10 7/8% to 11%. This tranche was previously $450 million in size and had been talked at 11% to 11¼%. It is non-callable for five years. The increased size will finance a tender for Donnelley's $150 million of 9 1/8% senior subordinated notes due 2008.

By tendering for the $150 million 9 1/8% notes, Donnelley will remove an issue which was recently found to be subject to a technical violation of covenants. The default resulted from a failure to add some subsidiaries as guarantors to the indenture in 2000.

To resolve that violation, Donnelley modified the indentures to add extra guarantees by subsidiaries. In addition Goldman Sachs Capital Partners 2000, LP and affiliated entities invested $70 million in the company earlier than anticipated. The injection of new capital is in the form of a purchase of convertible preferred stock and is the first installment of a planned total $200 million investment.

Donnelley said in a news release that the additional guarantees and the $70 million investment cured the technical default.

R.H. Donnelley is a Purchase, N.Y. marketer of yellow pages advertising.

Joint bookrunners for its Rule 144A deal are Salomon Smith Barney, Bear Stearns & Co. and Deutsche Bank Securities Inc.

Proceeds will be used to help finance R.H. Donnelley's $2.23 billion acquisition of Sprint's directory publishing business, to repay senior debt and to finance the note tender.

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