If you need to Yell, then get on with it

September 23, 2009

It’s hard enough to persuade your bank manager to agree new terms for your overdraft, but when there are 300 lenders who are owed nearly 4 billion pounds between them, it’s perhaps no wonder that Yell’s refinancing seems to be taking forever.

In June the Yellow Pages publisher signalled that the process was underway. On Wednesday it revealed agreement with its lead banks and a headline figure of 500 million pounds for its rights issue, roughly its market capitalisation after the recent run-up in the shares. The issue itself is unlikely before November, as Yell still needs time to corral its myriad lenders to agree to restructure its debt.

Now it has struck a deal with 40 percent of the lenders, Yell can at least confirm the size of the bill for shareholders, while also warning that they will need to find a further 300 million pounds if no alternative can be invented. At least, before the rights issue door finally slams shut, the company has got its foot in it.

There are no nasty surprises on trading for this year, but things remain grim, and Citigroup and Cazenove were quick to cut their forecasts for next year. The migration from yellow paper to the web is slow and uncertain, but a successful refinancing would prevent a fire sale of the Spanish and U.S. businesses, keep the well-regarded John Condron in charge and prevent the banks from grabbing the company.

It’s expensive, of course. The 300 banks who fought to get aboard the financing of the Spanish acquisition in 2006 will be invited to approve a rise in their margin over LIBOR from 3 percent to between 3.5 and 4 percent. These days that counts as cheap money for an industrial borrower.

The banks will also gouge 50 million pounds in a “consent fee”. The consent is needed before Yell can improve the banks’ security through the rights issue, redeem some debt now, and pay more interest on what’s left. Somehow, it seems a much easier way to make money than, say, flogging round millions of small businesses trying to persuade them to take advertising in your doorstopper book.

(Neil Collins is a shareholder in Yell)

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