DBRS Confirms Yellow Pages Income Fund at STA-1 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the stability rating of Yellow Pages Income Fund (“Yellow Pages” or the “Company”) at STA-1 (low) as the Company has solidified its dominant position as the major directory provider across Canada, despite a weakening financial profile. With the acquisition of Advertising Directory Solutions Holdings Inc. (“ADS”) that closed in May 2005, Yellow Pages now has virtual coast-to-coast reach in Canada. DBRS believes that will enable the Company to maintain its pricing power and protect its robust profit margins, while maintaining a relatively low capital expenditure program.

DBRS acknowledges that the ADS acquisition also provides some growth opportunities through the creation of a national platform, but it remains to be seen whether this will have a major overall impact. The synergies of this acquisition are expected to flow through over the next year, but during this period DBRS is cognizant of integration risks that could delay or minimize projected cost savings. In terms of competition, DBRS does not expect existing print competitors to gain significant incremental share given Yellow Pages’ high return on investment for its customers and the national reach of the Yellow Pages directories. However, the electronic medium appears to be more of a challenge as competitors are beginning to fine tune their offerings, along with providing more frequent updates of information. DBRS believes that the electronic segment is still in its early stages and will continue to monitor its evolution.

While the acquisition of ADS has increased the Company’s size and solidified its dominance, it has come at the cost of higher debt levels at YPG Holdings Inc. However, it is DBRS’s expectation that debt levels will be reduced over the medium term and that coverage and liquidity ratios will improve, but not back to the levels that existed prior to the acquisition of ADS. Despite this pressure, current distributions to unitholders benefit from the continued strength of the Yellow Pages franchise with the declared/cash available ratio remaining at one times. With Yellow Pages indicating that distribution could increase by 6% versus the previous 4% rate, DBRS anticipates that synergies and growth initiatives should help the Company maintain this ratio.