Yellow Media receives final court approval for recapitalization plan

By Jim Witters

Wilmington, Del., Dec. 14 - Yellow Media Inc. received approval for a recapitalization plan that will reduce the company's debt - including preferred shares, series 1 and series 2 - by about $1.5 billion and provide the financial flexibility the company needs to transform the business to a digital media and marketing solutions company, according to a company press release issued on Dec. 14.

The Québec Superior Court found the plan acceptable under the Canada Business Corporations Act.

The recapitalization is expected to be implemented and become effective on Dec. 20 subject to the approval of the Toronto Stock Exchange.

Under the plan, holders of Yellow Media's existing securities as of the effective date will receive cash, new senior secured notes, new senior subordinated exchangeable debentures, new common shares and warrants in exchange for their existing securities.

The recapitalization of the company's senior unsecured credit facility will be implemented through a termination and settlement agreement, rather than through the company's plan of arrangement under the Canada Business Corporations Act.

Recapitalization details

Under the recapitalization:

• The company will pay all accrued interest up to but excluding the date of implementation of the recapitalization to the lenders, the holders of its existing medium-term notes and the holders of its existing convertible unsecured debentures;

• The company will make a $25 million amortization payment to the lenders on the outstanding balance of the non-revolving tranche of the credit facility originally due on Oct. 1;

• The lenders will receive a $25 million additional principal amount of new senior secured notes;

• In exchange for the payment of the additional $25 million amortization amount on the non-revolving tranche of the credit facility and the issuance of the additional $25 million principal amount of new senior secured notes to the lenders, the principal amount of the outstanding credit facility debt will be reduced by $58 million, to $311 million;

• Holders of the existing convertible unsecured subordinated debentures will receive $5 million additional principal amount of new senior subordinated exchangeable debentures;

• The annual interest rate on the new senior secured notes will be increased to 9¼% from 9%;

• The mandatory redemption provisions on the new senior secured notes will be amended to provide that the company will use an amount equivalent to 75%, up from 70%, of its consolidated excess cash flow for the immediately preceding two fiscal quarters on a semi-annual basis on the last day of May and November of each year, beginning on May 31, 2013, to redeem the new senior secured notes at par;

• The company will make $100 million of minimum annual total mandatory redemption payments on the new senior secured notes for the combined payments due on May 31, 2013 and Nov. 30, 2013, as well as $75 million for the combined payments due on May 31, 2014 and Nov. 30, 2014 and $50 million for the combined payments due on May 31, 2015 and Nov. 30, 2015;

• For purposes of determining consolidated excess cash flow, deductions for capital expenditures and information systems/information technology expenses will each be subject to an annual deduction limit of $50 million;

• The board of directors of New Yellow Media will be comprised of 10 directors instead of nine;

• The lenders will have the right to nominate one member of the company's initial board of directors, who will also be a member of the initial audit committee of New Yellow Media; and

• The exercise price of the warrants and the exchange price of the new senior subordinated exchangeable debentures to be distributed under the recapitalization will remain unchanged at $28.16 and $19.04, respectively.

Distribution totals

Creditors and shareholders are slated to receive an estimated $275 million in cash, $800 million of new senior secured notes and $107.5 million of new senior subordinated exchangeable debentures under the recapitalization.

In addition, 27.95 million of new common shares and 3 million new warrants will be distributed.

Media and marketing company Yellow Media is based in Montreal.

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