Yell Group is seeking to relax its banking covenants
guardian.co.uk, Wednesday 7 December 2011 19.37 GMT
Yell Group, the ailing phone book publisher, is at loggerheads with a group of some 40 distressed debt funds over a restructuring of its £2.6bn debt, and has given its lenders until the end of this week to sign a deal.
The deadline for agreement, originally set for 30 November, has now been extended three times, with Yell struggling to secure a 66% majority in favour of laxer banking covenants. Revenues from its printed directories are deteriorating.
A spokesman for the company said if no agreement were reached by Friday, Yell would abandon talks and return with a new proposal next year.
Without some extra breathing space, the company is in danger of breaching the terms of its loan at some point in 2012, which would trigger foreclosure by its creditors. Royal Bank of Scotland, HSBC and Deutsche Bank hold around half of Yell’s debts, but the rest is owned by around 300 hedge funds specialising in distressed company debt.
They have been snapping up Yell loan notes in the corporate bond market, where confidence in the company’s performance is so low that they currently trade at 70% less than face value.
A group of around 40 debt funds have hired boutique investment bank Moelis & Company to negotiate on their behalf. They have no objection in principle to more relaxed covenants, but want to extract a higher inducement fee from Yell in return for signing up to the proposals.
Yell wants to reduce its undrawn credit facility with the banks from £173m to £30m, and to give itself more headroom under its banking covenants. These dictate that borrowings must be no more than 4.85 times earnings by next Christmas, and Yell wants the ceiling lifted to six times earnings.
The funds argue that reducing the credit facility is equivalent to a repayment at face value, which would benefit the banks at the expense of other holders. They want an additional fee, which could cost Yell up to £13m, paid to those not benefiting from the reduction in the credit facility.
A source close to Yell said: “The company is trying to find a compromise. Bank lenders want one thing; the corporate bond holders want another. You’ve got everyone playing chicken. If they can’t do it by the end of the week, Yell doesn’t need to do this now and can come back at another stage.”
The leveraged debt investors include Harbourmaster Capital, a Dublin-based corporate bond specialist, which claims to have €8bn (£6.8bn) under management and was bought by private equity giant Blackstone Group in October.