BMO Reports Sept 28Sept 28BMO Target 0.75 as of sept 28 reports, Underperform, Balance Sheet UpdateYellow Media announced several items related to its capital structure.They include 1) the company will incur a $2.9b non-cash goodwill impairment charge, 2) the dividend to common shares has been eliminated(it wascut from
.65 to
.15 [annualized] in August), and 3)amendments to its credit facility. The credit facility has been reduced from$1b to $500mm and the company has agreed to repay the banks with$25mm quarterly installments beginning 2012. The latter payments will effectively be financed by the dividend cut, which saves roughly $80mmper year in cash obligations. The company did not comment on the series 1preferred shares, which mature in December 2012 ($265mm) and can beredeemed in stock at $2 per share, or various MTNs that mature beginning in 2013.Trader Cash Used to Reduce Bank Debt; Dividend EliminatedYLO is addressing short-term bank refinancing risk which is a positive. But, bondholders expecting YLO to repurchase $700 million of bonds inthe secondary market will be disappointed that the company will insteadrepay two-thirds of its bank debt in the third quarter. Banks will havemuch less credit exposure to YLO when the facility comes up for renewal in 2013 and as bonds begin to come due in 2013. The company was briefly active in August repurchasing $238 million bonds. The elimination of the future dividends will save the company ~$78 million annually,which will be used to reduce “indebtedness.” There was no mention of the series 1 preferred shares. The 50% reduction in the size of the bank facility reduces the company’s future financial flexibility. The February 18, 2013,facility expiry date was unchanged. If the company ceases repurchasing preferred shares (~$22 million in August), it’s a modest positive for bondholders. Summary of announcements: 1) $78 million annual dividendeliminated, 2) bank credit agreement amended (reduced by $500 million), 3) $25 million quarterly repayment of remaining bank loan beginning in2012, 3) $2.9 billion non-cash goodwill impairment charge (~49% of goodwill at June 30/11). S&P senior unsec still rated BB+ Stable