YLO: S&P Downgrades to P-4(low)

Standard & Poor’s has announced:

  • Deteriorating operating performance, combined with substantially weakened access to capital markets, has materially affected the credit quality of Montreal-based classified directory publisher Yellow Media Inc., in our
    opinion.
  • As a result, we are lowering our long-term corporate credit rating on Yellow Media to ‘BB-‘ from ‘BB+’ and placing the company on CreditWatch with negative implications.
  • At the same time, we are lowering various issue-level ratings on Yellow Media and putting these ratings on CreditWatch, reflecting the downgrade on the company.
  • The CreditWatch listing reflects our concerns about Yellow Media’s
    deteriorating cash flows and weakened access to the capital markets, which have increased the risk associated with the company’s ability to refinance its future debt maturities.


At the same time, we lowered our issue-level rating on the company’s senior unsecured debt to ‘BB-‘ (the same as the corporate credit rating on Yellow Media) from ‘BB+’, and revised our recovery rating on the debt to ‘4’ from ‘3’. A ‘4’ recovery rating indicates our expectation for average (30%-50%) recovery in the event of a default.

We also lowered our issue-level rating on Yellow Media’s subordinated debt to ‘B’ (two notches below the corporate credit rating) from ‘BB-‘. The recovery rating on this debt is unchanged at ‘6’, indicating our expectation of negligible (0%-10%) recovery in a default situation.

Finally, we lowered our Canada scale rating on the company’s preferred shares to ‘P-4 (Low)’ from ‘P-4 (High)’. All of the issue level ratings have been placed on CreditWatch negative, reflecting the downgrade on the company.

“The downgrade and CreditWatch listing reflect our concerns about a further deterioration in operating performance and rising refinancing risks at Yellow Media,” said Standard & Poor’s credit analyst Madhav Hari. “Specifically, we now believe that print declines will accelerate beyond our low-to-mid teens percent expectations and that the company will be challenged to increase its online revenue at the levels we had imputed in our previous assumptions,” Mr. Hari added.

As such, erosion of overall revenue could be steeper in the near term while visibility for the timing of revenue stabilization or turnaround is very poor. More important, given print acceleration and the greater degree of investment needed to even sustain a lower pace of online growth, we now believe operating margins could prove to be below our previous expectations of about 50%. Consequently, we expect discretionary operating cash flow to weaken, which would limit the company’s financial flexibility. Given significant uncertainty with regard to the company’s ability to renew or extend its bank facilities beyond February 2013, and arguably poor access to the capital markets (as evidenced by pricing of the company’s equity and debt securities), we believe refinancing risks associated with the company’s future debt maturities, including the C$255 million medium-term notes due 2013, has increased meaningfully.

YLO has four issues of preferreds outstanding: YLO.PR.A & YLO.PR.B (OperatingRetractible) and YLO.PR.C & YLO.PR.D (FixedReset).

These issues were last mentioned on PrefBlog when I published a transcript of the 11Q3 Conference Call. All issues are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

One Response to “YLO: S&P Downgrades to P-4(low)”

  1. […] These issues were last mentioned on PrefBlog when S&P downgraded them to P-4(low). […]

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