DBRS Confirms Yellow Media Following Announced Agreement to Sell Automotive Assets of Trader Corp.

DBRS has today confirmed the ratings of Yellow Media Inc. (Yellow Media or the Company), including its Medium-Term Notes at BBB (high) and Commercial Paper at R-1 (low), following the announcement that it has reached an agreement with Apax Partners to sell the automotive assets of Trader Corporation (Trader) for a purchase price of approximately $745 million. The agreement includes the sale of Trader’s print and online automotive businesses and its 30% stake in Dealer.com (results were consolidated). The trends are Stable.

The confirmation of Yellow Media’s ratings reflects the following:

(1) An acceleration of the Company’s goal to improve its financial risk profile as DBRS expects cash proceeds of approximately $745 million from the sale of Trader’s automotive businesses (the majority of its Vertical Media segment) to be mainly used to reduce debt.

(2) Its leading position in Directories, the Company’s principal segment, and the significant risks this segment continues to face as it transforms itself from a print-placement organization into an online/digital media and marketing service provider.

DBRS believes that the accelerating of Yellow Media’s de-leveraging efforts with the sale of Trader’s automotive businesses should help support the Company’s Directories multi-year print-to-digital transformation as it will give the Company greater ability to continue to make small acquisitions to add to its service offering and provide a greater buffer should this transition place pressure on its operating results. While DBRS believes that the portfolio of new services that Yellow Media has amassed over the past couple of years to facilitate this transition supports this strategy, DBRS expects that diligent execution of this transformation will be required in order to stabilize the Company’s business risk profile.

In terms of financial risk, DBRS expects Yellow Media’s credit metrics to improve in 2011 with the Trader sale proceeds focused on debt reduction. This improvement is despite the loss of revenue and EBITDA from these businesses and the fact that Yellow Media has become taxable as a corporation in 2011. In particular, DBRS expects Yellow Media’s credit metrics to improve in 2011, with the percentage of debt in the capital structure in the low 20% level (currently 28.7%), cash flow-to-debt closer to 0.35 times (currently 0.32 times) and gross debt-to-EBITDA roughly 2.0 times (currently 2.67 times).

The sale of Trader’s automotive assets, which is subject to regulatory approval and other customary conditions, is expected to close in Q2 2011. As part of the transaction, Yellow Media plans to retain three Trader businesses that were also part of its Vertical Media segment: real estate, employment and LesPAC.com.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Printing and Publishing and Rating Media and Entertainment, which can be found on our website under Methodologies.