Yellow Media Inc.’s decision to sweeten its proposed debt restructuring by offering more to holders of convertible debentures has done little to pacify the incensed group, putting the media company in a bind just days before its plan goes to a vote.
On Tuesday, the media company struck a much more conciliatory tone than its language in recent weeks and offered convert holders, who own bonds that can convert to common shares, better terms as part of the restructuring. Rather than give them 12.5 common shares of the company after restructuring for every $100 of converts owned, Yellow Media is willing to give them 50 shares.
The offer was a non-starter. Shortly after it was put forward, the lawyers representing this group said it wasn’t a “meaningful attempt by Yellow Media to satisfy the legitimate rights and expectations of the convertible debenture holders.”
“Clearly, this is not viewed as a serious attempt to address our group’s concerns,” lawyer Mark Meland of Fishman Flanz Meland Paquin LLP wrote in an e-mail.
After such a quick rebuke, Yellow Media must now determine whether it wants to offer even more to the frustrated convert holders, who argue that the new terms would still give them less than than the value of the semi-annual interest payment owed to them in October. The media company must also decide whether it is going to offer the disgruntled lending syndicate anything new to get it on board, after the group publicly disclosed its own suggestions for modifying the plan late last week. For either decision, time is of the essence: the clock is ticking heading up to Thursday’s vote.
The recent flurry of activity comes after a Quebec court declined to rule in early August on the fairness of Yellow Media’s proposed restructuring. Because there was still so much time before the vote, Judge Robert Mongeon decided it was best for the bitter parties to come together and hash out a plan that everyone liked – or could at least agree to sign.
So far, there’s been next to no compromise. Instead, last week Yellow Media more or less threatened the banks and convertible debenture holders who criticized its restructuring plans by attempting to amend its proposal, allowing the company to quickly file for CCAA restructuring should its current plan not fly. That amendment, however, was quickly struck down by a judge late on Friday.
As this debacle played out, the lending syndicate also went public with its own suggestions for modifying the plan. Until late last week, the public didn’t really know what the syndicate would like to see as part of the restructuring – the word was simply that the syndicate was upset over never being consulted on the proposal. (The convert holders, on the other hand, were clearly mad about what they would receive, which was less than the preferred share holders who rank lower in the capital structure.)
In a public filing, the lending syndicate first asked that the financial position of Yellow Media be fully disclosed so that everyone can proceed with full information. Typically in a restructuring, the troubled company makes things like its financial forecasts available to all stakeholders so that they can assess the future, but in this case Yellow Media has kept its cards close to the chest.
As for the specific terms of the deal, the lending syndicate has proposed that less of its outstanding loans be converted to common equity, which it argues would give current common shareholders a greater stake in the company following the restructuring.
Under the current proposal, the lending syndicate and Yellow Media’s senior debtholders (who collectively are owed $1.8-billion) would get 82 per cent of the company’s common shares.
A vote on the current plan is scheduled for Thursday, but even if it is approved by stakeholders, there is a chance that the Quebec court could still throw it out following a hearing that will come shortly after the vote.