Yellow Pages speculation dismissed

Reports from Australia that American consultants have been hired to run directories publisher Yellow Pages are being dismissed as speculation by local sources.

The company is effectively at the mercy of its bankers after its profits were overwhelmed by huge debts incurred in its acquisition by private equity funds three years ago.

A process run by Goldman Sachs to solicit bids for the business closed last month and is understood to have attracted three potential buyers. While the 31 banks in the lending consortium are considering those bids, converting some of their debt to equity remains an option.

Their potential role as owners of Yellow Pages parent YPG Holdings triggered a report in The Australian today that American firm FTI Consulting was expected to take over management of the group.

YPG managing director Bruce Cotterill declined to comment on the report, but other sources close to the company said they were not aware of any move to bring in FTI.

The troubleshooting consultancy has a global footprint, including offices in Sydney and Melbourne, but it is understood any staff required for a job such as YPG would have to be flown in from its corporate headquarters in Baltimore in the US.

YPG's most recent published financial statements show it owed its senior bank lenders $1.16 billion as of June last year, plus a further $307m in subordinated debt owed to three banks and a capitalising interest loan of $223m.

The debts date from YPG's purchase from Telecom by private equity firm Unitas Capital and an Ontario teachers' pension fund in April 2007.

At the time, YPG's earnings were expected to rise from the $157m achieved in 2007, but the movement was in the opposite direction. Well-placed sources indicate earnings (before interest, tax, depreciation and amortisation) are now closer to $130m, implying the senior debt covenant restricting debt to no more than 6.25 times earnings has been well and truly breached.

Market values of other directories businesses suggest YPG is currently worth about $700m, less than the company's debts and a fraction of the $2.15b paid to acquire it three years ago.

About $774m invested by Unitas and Teachers Private Capital is now worthless.

- © Fairfax NZ News