S&P Downgrades YLO Preferreds to C

Standard and Poor’s has announced:

  • Standard & Poor’s is concerned about Montreal-based Yellow Media Inc.’s weakening operating performance, as well as various actions the company has taken recently to deal with refinancing risk.
  • As a result, we are lowering our long-term corporate credit rating on Yellow Media by three notches to ‘B-‘ from ‘BB-‘.
  • At the same time, we are lowering our issue-level rating on the company’s senior secured debt to ‘B-‘ from ‘BB-‘ and lowering our rating on the subordinated debt to ‘CCC’ from ‘B’. The recovery ratings on the debt are

  • We are also lowering our rating on the company’s preferred shares to ‘C’ from ‘P-4 (Low)’ following the company’s decision to suspend dividends on these securities.
  • Finally, we are keeping all the ratings on the company on CreditWatch with negative implications where they were placed Dec. 5, 2011.The CreditWatch listing reflects our concerns about Yellow Media’s deteriorating cash flows and arguably poor access to the capital markets, which we believe limits its available options for refinancing upcoming debt maturities.

Separately, we lowered our Canada scale rating on the company’s preferred shares to ‘C’ from ‘P-4 (Low)’ following Yellow Media’s Feb. 9, 2012, announcement to suspend future dividends on all preferred shares outstanding of the company. We expect to lower the ratings on these securities to ‘D’ upon nonpayment of the dividends on their respective payment dates.

“The downgrade follows Yellow Media’s weak operating performance for the three months ended Dec. 31, 2011, which, combined with several corporate actions the company announced on Feb. 9, materially increase refinancing risk, in our opinion,” said Standard & Poor’s credit analyst Madhav Hari.

We also note that Yellow Media’s limited financial flexibility to invest in growth initiatives will affect its ability to increase its online revenue more materially in the near term. While we believe that the company should be able to generate meaningful discretionary cash flow, at least in the next couple of years, we note that internal cash flow might not be sufficient to fully repay the sizable amount of debt maturing in the next couple of years. Given arguably poor access to capital markets (as evidenced by the price of the company’s securities relative to book value), we feel that Yellow Media will be challenged to refinance its debt obligations.

YLO was last mentioned on PrefBlog in the post DBRS Downgrades YLO to Pfd-5(low) Trend Negative.

YLO has four series of public preferred shares outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible), YLO.PR.C and YLO.PR.D (FixedReset). The company’s operating performance and prospects were reviewed in the February, 2012, edition of PrefLetter.

2 Responses to “S&P Downgrades YLO Preferreds to C”

  1. […] ascribed to the suspension of dividends on these issues, followed by sharp downgrades from DBRS and S&P. Unitholders and casual readers will know that these issues have been a nightmare for me since the […]

  2. […] YLO preferreds (YLO.PR.A, YLO.PR.B, YLO.PR.C & YLO.PR.D) were last mentioned on PrefBlog when S&P downgraded them to C. All the issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit […]

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