DBRS Downgrades Yellow Media to CCC, Trend Remains Negative

DBRS has today downgraded Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating to CCC from B (low); its Medium-Term Notes rating to CCC from B (low), with an RR4 recovery rating; and its Exchangeable Subordinated Debentures to CC (high) from CCC, with an RR6 recovery rating. The trend on all ratings remains Negative.

DBRS notes that Yellow Media’s unsecured debt continues to have average recovery prospects (RR4; 30% to 50% expected recovery), while its subordinated debt has poor recovery prospects (RR6; 0% to 10% expected recovery) under a base case default/recovery scenario.

The decline in Yellow Media’s print revenue continues and is expected to be even more rapid and enduring than previously anticipated. The Q1 2012 results support this view and the trend is expected to continue. As such, Yellow Media performed an asset impairment test in relation to its most recent results and trends and recorded a goodwill impairment charge of $3 billion.

The reduced expectations for revenue, operating income and cash flow, combined with the Company’s first scheduled debt maturity in February 2013, leads DBRS to believe that the likelihood that Yellow Media’s financing activities in 2012 will involve some form of compromise for existing creditors has increased further than anticipated in the previous rating action on April 2, 2012. The Negative trend reflects the likelihood that Yellow Media’s ratings will be further downgraded with the passage of time or in the event that the Company pursues some form of recapitalization.

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

The applicable methodologies are DBRS Criteria: Rating Leveraged Finance and Rating the Newspaper and Magazine Publishing Industry, which can be found on our website under Methodologies.