RE:RE:Yellow Media v Dex Media28 Days Untll Second Quarter 2013 Earnings Release. I am not expecting anything exciting.
73 Days Until their 1 Year anniversary of the recapitalization. I am expecting that after this day the forced selling from bond funds who own the equity to subside.
The gorilla in the room seems to be the credit ratings, which as CANSO eloquently puts it, seem a bit off. (Fast Forward to Minute 17:
https://lysanderfunds.com/2010/wp-content/uploads/2013/07/Conference-Call-2.mp3)
Last I checked their net debt as of Q2 was $683M and their annualized interest obligation was $80M/year (11.7%). I am marking their debentures to par.
With the new payment I believe that puts their Q3 somewhere around $627M of net debt with an annualized interest obligation around $72.7M/year (11.6%).
At the end of Q4 my projections put them at $573M of net debt and $68.6M of annualized interest obligations (11.9%).
It is my predisposition that there will be a time sometime before the end of 2014, at which point the credit ratings agencies will upgrade the debt of Yellow Media.
Yellow Media's credit ratings have as far as I can tell not been updated since 3/25/2013, and these ratings were:
DBRS
- B (low) / issuer rating – stable trend
- CCC (high) / credit rating for Senior Secured Notes
- CCC / credit rating for Exchangeable Debentures
Standard & Poor's
- B / corporate credit rating – stable outlook
- B+ / credit rating for Senior Secured Notes
- CCC+ / credit rating for Exchangeable Debentures
There are a few factors that I think make a case for the present debt rating to be reconsidered:
- The completion of the open market purchase of $8M of notes on September 25, 2013
- The redemption of $27M of notes on October 29, 2013
- The notes trade above par at around 105, evidenced by the redemptions being chosen over additional open market purchases.
Note that before the recapitalization, the average interest rate on their debt was less than 6% with a Net Debt / EBITDA of around 2.6x. For the time being, they pay more for less. This is due to the nature of the recapitalization deal. I think that things will normalize, but first the credit ratings agencies need to catch up with the market and the ratings of junk are not presently in line with the market valuation of above-par.
Below is my table for what the MTN interest rates used to be, for reference purposes.
| July 2013 - 6.50% |
| Dec 2013 - 6.85% |
| Apr 2014 - 5.71% |
| Feb 2015 - 7.30% |
| Feb 2016 - 5.25% |
| Nov 2019 - 5.85% |
| Mar 2020 - 7.75% |
| Feb 2036 - 6.25% |