PrefBlog

A mere affirmation of a rating would not normally warrant a dedicated post, but I’ve spent so much of the past six months writing about the issue, it’s worth highlighting.

DBRS confirmed its ratings on YLO today:

DBRS has today confirmed Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating at BB, its Medium-Term Notes at BB with an RR4 recovery rating, its Exchangeable Subordinated Debentures at B (high) with an RR6 recovery rating and its Preferred Shares at Pfd-4 (low). The trend on its Issuer Rating, debt and preferred shares remains Negative (DBRS lowered its ratings on Yellow Media on September 28, 2011).

DBRS notes that Yellow Media’s unsecured debt has average recovery prospects while its subordinated debt has poor recovery prospects under a base case default/recovery scenario. As such, DBRS has confirmed Yellow Media’s Medium-Term Notes recovery rating at RR4 (30% to 50% expected recovery) with an instrument rating of BB and confirmed its Exchangeable Subordinated Debentures recovery rating at RR6 (0% to 10% expected recovery) with an instrument rating at B (high).
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From a financial risk perspective, DBRS notes that Yellow Media’s limited financial flexibility and liquidity are compounded by little access to the capital markets. This puts the Company in a position of being largely reliant on its internally generated free cash flow as its primary source of liquidity to repay its debt maturities. While DBRS notes that reduced debt in 2011 (largely paid for with proceeds from the sale of Trader Corporation and LesPAC Inc., as well as free cash flow), the lower resulting interest expense and the reduction and ultimate elimination of its common share dividend in Q4 2011 will help in terms of free cash flow, these will only partially offset the aforementioned pressure on EBITDA as the print-to-digital transition continues. Despite these factors, DBRS expects the Company should be able to generate free cash flow of $200 million or more per year (DBRS has assumed cash taxes are paid in the year they are incurred) in 2012. However, DBRS notes that over the four years from 2013 to 2016, roughly two-thirds of Yellow Media’s total debt ($1.9 billion as at September 30, 2011) matures. In 2013, the Company faces its largest maturity year (likely to be approximately $400 million) as its credit facility matures in February, followed by notes in July and December.
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DBRS notes that Yellow Media must demonstrate meaningful traction with its digital transition while attaining additional liquidity to help with refinancing needs to keep its Issuer Rating in the BB range. Alternatively, should its transition take longer while print pressure continues to accelerate, Yellow Media may not have the ability to handle its debt maturities by means of internally generated free cash flow as they mature.

Separately, the commercial paper rating was withdrawn:

DBRS had today discontinued its Commercial Paper rating of Yellow Media Inc. (Yellow Media or the Company) after all of the Company’s outstanding commercial paper was repaid upon maturity in November 2011.

DBRS does not expect Yellow Media to issue commercial paper in the near term.

YLO has four listed issues of preferred shares: YLO.PR.A and YLO.PR.B (OperatingRetractible) and YLO.PR.C and YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

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

This entry was posted on Thursday, December 8th, 2011 at 11:05 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.