PrefBlog

The YLO recapitalization announced in July and amended September 4, has been approved:

Yellow Media (TSX: YLO) announced today that its proposed recapitalization has been approved by the requisite majority of its debtholders and shareholders at their respective meetings, both of which were held earlier today in Montréal.

“We are pleased with the results of the vote” said Marc P. Tellier, Yellow Media’s President and Chief Executive Officer. “The approval by the debtholders and shareholders represents a significant milestone towards the completion of the recapitalization.”

The Company proposed the recapitalization to align its capital structure with its operating strategy. The recapitalization will substantially improve the financial flexibility of the Company and allow the Company to pursue its ongoing transformation in order to enhance long-term value for stakeholders.

The implementation of the recapitalization is expected to occur by the end of September 2012 subject to a number of conditions, including the receipt of the final approval by the Québec Superior Court, and to other risks and uncertainties.

The preferred shares, YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D, immediately jumped from about $0.50 to the $0.70-0.80 range.

As preferred shareholders will get 6.25 new common per 100 preferreds (as well as some warrants) this indicates that new common is being priced at about $12/share.

As about 28-million new common shares will be issued (and some warrants) this indicates market capitalization of about $335-million on the restructured company, on top of about $850-million in debt. As noted on April 9 the Cerberus / AT&T transaction indicated an enterprise value of about $1-billion for YLO, which some people (according to Boyd Erman) thought could stretch to the 1.4-billion to 2.2-billion range.

The common shares are now trading at 0.085-0.09; the recapitalization’s conversion ratios indicate that one preferred share should be worth about 12.5 old common shares.

Update, 2012-9-10: YLO provides reorganization timing:

Yellow Media Inc. (TSX: YLO) announced today that, following the approval of the recapitalization by the requisite majority of the Company’s debtholders and shareholders at their respective meetings held on September 6, 2012, the hearing for the final approval of the recapitalization by the Québec Superior Court has been set by the Court to begin on October 15, 2012.

The implementation of the recapitalization is currently expected to occur on or about October 31, 2012, subject to a number of conditions, including the receipt of the Court’s final approval as set forth above, and to other risks and uncertainties.

BCE has announced:

that 2,957,474 of its 10,081,586 fixed-rate Cumulative Redeemable First Preferred Shares, Series AA (series AA preferred shares) have been tendered for conversion on September 1, 2012, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AB (series AB preferred shares). In addition, 3,020,190 of its 9,918,414 series AB preferred shares have been tendered for conversion on September 1, 2012, on a one-for-one basis, into series AA preferred shares. Consequently, on September 1, 2012, BCE will have 10,144,302 series AA preferred shares and 9,855,698 series AB preferred shares issued and outstanding. The series AA preferred shares and the series AB preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.A and BCE.PR.B, respectively.

The series AA preferred shares will pay on a quarterly basis, for the five-year period beginning on September 1, 2012, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.45%.

The series AB preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on September 1, 2012, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series AB preferred shares in the preceding month) and the Designated Percentage for the preceding month.

I’m surprised to see that so many BCE.PR.A remain, particularly since I recommended conversion to BCE.PR.B. But that’s what makes a market!

Both BCE.PR.A and BCE.PR.B are tracked by HIMIPref™; both are relegated to the Scraps index on credit concerns.

As part of their new issue announcement, Brookfield Office Properties has announced:

The net proceeds of the issue will be used to redeem Brookfield Office Properties’ Cumulative Class AAA Preference Shares, Series F and, to the extent the underwriters’ option is exercised, for general corporate purposes. The offering is expected to close on or about September 13, 2012.

BPO.PR.F is an OperatingRetractible paying 6% of par, redeemable at par commencing 2012-9-30. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Yellow Media Inc. has announced:

that, in connection with its proposed recapitalization, it has amended the plan of arrangement to be considered and voted upon by the Company’s debtholders and shareholders at the meetings scheduled to be held this coming Thursday, September 6, 2012.

The Board of Directors of Yellow Media has decided to amend the plan of arrangement pursuant to Section 6.3 thereof so that the Company’s existing convertible unsecured subordinated debentures will be exchanged, as part of the recapitalization, for an increased number of existing common shares, on the basis of 50 shares, up from 12.5 shares, for each $100 principal amount of existing subordinated debentures. This amendment is supported by the holders of the Company’s existing medium term notes that have executed support agreements in favour of the recapitalization. The revised exchange ratio is the same as the exchange ratio used to determine the consideration to be received pursuant to the recapitalization by holders of the Company’s existing preferred shares. The Board has made this decision after giving consideration to the numerous representations made to the Company regarding the recapitalization, in particular by holders of existing subordinated debentures. Yellow Media is of the view that the recapitalization, after giving effect to the amendment, is responsive to the comments which have been received and strikes a better balance between the interests of stakeholders having regard to available alternatives while recognizing the imperative of moving forward with the recapitalization in order to provide the Company with the necessary financial flexibility to pursue its ongoing business transformation.
…
The amendment does not affect the relative treatment of senior debtholders under the recapitalization. As such, in order to preserve the allocation to senior debtholders under the recapitalization and to account for the increased number of new common shares to be issued, the number of new common shares to be issued to senior debtholders pursuant to the recapitalization will increase from 21,295,090 to 23,062,947, the exercise price of the warrants will be reduced from $31.67 to $29.25, and the exchange price of the senior subordinated exchangeable debentures to be issued to senior debtholders pursuant to the recapitalization will be reduced from $21.95 to $20.27. The aggregate number of new common shares to be issued pursuant to the recapitalization will thus rise from 25,812,230 to 27,955,088.
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So it used to be that preferred shareholders would be getting 1.8-million new common shares out of 25.8-million, or 7% of the company … now they’re getting 1.83-million out of 27.96-million, or 6.5%.

I have previously recommended that preferred shareholders should vote against the plan:

YLO has four series of preferred shares outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D. I recommend that preferred shareholders vote against the plan, on the grounds that they are being treated as if they have all be forcibly converted into common at the YLO.PR.A / YLO.PR.B rates prior to the conversion of the old common into new securities. That’s reasonable for YLO.PR.A and YLO.PR.B, but not so much for YLO.PR.C and YLO.PR.D, which are not convertible by the company. And, even for the A & B holders – you’re not getting paid to vote yes, so why give it away? If the company wants a yes vote from you, they should provide a little sweetener; the offer that’s on the table is already a worst-case scenario.

Tim Kiladze of the Globe and Mail reports:

Yellow Media’s hopes of amending its restructuring proposal have been smacked down by a Quebec court just days before the company faces a vote on its much-criticized plan.

Early last week, Yellow Media put together a conference call to threaten that it would seek creditor protection in order to reduce almost $2-billion of debt should stakeholders vote against its current restructuring proposal. Those efforts were shot down just a few days later by judge Robert Mongeon, who delivered his ruling just a few hours before the long weekend started.

The sequence of events is a bit tricky to follow, but the gist of the story is that Yellow Media’s restructuring proposal has been filed under the Canada Business Corporations Act (CBCA). Last week, Yellow Media chief executive officer Marc Tellier tried to complicate the matter by amending the current resolution to implement the plan through the Companies’ Creditors Arrangement Act (CCAA) if the current effort “appears for any reason impracticable.”
…
Judge Mongeon didn’t let that language influence him. “I am of the view that the proposed amendment should not be part of the process currently envisaged under the CBCA inasmuch as it deals only with another proceeding under a different statute and which is, at this time, purely hypothetical.”

He explained his reasoning in detail. First, the judge noted that even Yellow Media admits that the proposed amendment isn’t necessary to pursue arrangement currently up for debate under the CBCA. Second, the CBCA and CCAA have different tests of admissability and different procedures, so having one proposal technically apply to both would be very tricky.

I am, of course, not a lawyer, but it’s my understanding that the CBCA is for solvent companies and the CCCA is for insolvent ones. Different admissabilities indeed!

I have previously recommended that preferred shareholders should vote against the plan:

YLO has four series of preferred shares outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D. I recommend that preferred shareholders vote against the plan, on the grounds that they are being treated as if they have all be forcibly converted into common at the YLO.PR.A / YLO.PR.B rates prior to the conversion of the old common into new securities. That’s reasonable for YLO.PR.A and YLO.PR.B, but not so much for YLO.PR.C and YLO.PR.D, which are not convertible by the company. And, even for the A & B holders – you’re not getting paid to vote yes, so why give it away? If the company wants a yes vote from you, they should provide a little sweetener; the offer that’s on the table is already a worst-case scenario.