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Yellow's owner may be wound up, assets moved to new vehicle, before debt deadline

Monday 22nd December 2014

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NZ Directories Holdings, the owner of the Yellow directories service, is unlikely to be able to repay $500 million of notes next year and may be wound up, with the profitable operations poured into a new vehicle.

The company recorded an operating profit of $48.6 million in the 12 months ended June 30, down from $56 million a year earlier. But impairments about doubled to $82 million, widening the annual net loss to $45.8 million from $12.5 million a year earlier.

Notes to the company's financial statements say there is "no realistic ability" for the group to refinance $500 million of notes that come due on Aug. 31, 2015, given the company's current enterprise value and expected future earnings. An "orderly restructure" is anticipated because the group's lenders are also its ultimate shareholders. Under a draft plan a new vehicle, Newco, would be formed to purchase the operating assets of the group and the existing holding company would be placed in receivership or liquidation.

The restructuring would effectively be the second time in four years that creditors have seized control of the directories business. Bankers to the company formerly known as Yellow Pages Group wrote off $1.05 billion of debt when they took control of the business in 2011. They were issued 250 million shares held via Yellow Pages Equity Trust and $500 million of senior notes, wiping out the equity of the original owners, Hong Kong-based Unitas Capital and Canada's Ontario Teachers' Pension Plan, who bought Yellow Pages from Telecom for $2.24 billion in 2007 in a leveraged buy-out.

This time the owners won't take a haircut because after the restructuring they would still own the assets through Newco. PwC added an "emphasis of matter" in its audit report that the financial statements were prepared on "a realisation basis" rather than a going concern basis because it was the directors' expectation the company would be placed in receivership after the restructuring.

NZ Directories had assets of $206 million as at June 30 and liabilities of $446 million, of which $389 million is the balance of the notes outstanding.

Impairments in the latest year were made up of $71.5 million against brands and $10.6 million against customer relationships, which is an increase in the impairments of $34 million and $7 million respectively in 2013.

Sales in the latest year fell to $158 million from $181 million, which Yellow said amounted to a strong trading performance "in a tough media environment."

So far in the 2015 year, the company is "ahead of forecast and the targets that the ownership group have set for us," allowing it to repay some $61 million in principle and interest, chief financial officer Stephen Keeling told BusinessDesk.

Chairman Brett Chenoweth said both board and owners are "comfortable with Yellow’s financial performance."

“We are working with NZ Directories Holdings and have strong support from Yellow’s owners to optimise the capital structure in 2015," Chenoweth said. "This process is well underway and is expected to be completed in the 2015 financial year. This should not be confused with the very pleasing underlying performance of Yellow as an operating company."

He said Yellow’s revenue was significant in print and digital, "especially when compared to traditional media companies making the transition to digital."

"Yellow’s continued strong digital revenue and its significant proportional contribution is evidence of an advanced transformation strategy," he said.

Digital income made up 29 percent of revenue last year, which he said compared favourably to Television New Zealand, which got just 3.5 percent of revenue from digital, and Fairfax Media, which managed 6.2 percent of total revenue.





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