Yellow Media Inc.'s frustrated bankers and debt holders will have to wait another month before they find out if the company's contentious debt restructuring will stand.
Lawyers for the banks that lent the troubled media company money, as well as the holders of debentures that can be converted into common shares, appeared in a Montreal court on Monday to ask the judge to throw out the agreement Yellow Media has reached with its senior debt holders.
The plan will see the senior debt holders and the banks – the Big Six and Caisse Centrale Desjardins – repaid part of the $1.8-billion they are owed and also given 82 per cent of Yellow Media's common shares. The banks say they are fighting the proposal because they were not consulted about its creation, while convertible shareholders argue it treats them unjustly.
The next court date is scheduled for early September, shortly after Yellow Media's debt holders and shareholders vote on the current plan. Enough senior debt holders are believed to be already on board to ensure it passes. After the September hearing, the presiding judge will have to determine if the restructuring proposal is fair to all affected parties and if the banks and convertible debenture holders should have been consulted.
Although he had the opportunity to rule on Monday, Mr. Justice Robert Mongeon of the Quebec Superior Court declined to do so, stating that "it certainly is not appropriate to jump the gun" and that everyone would be better off if the matter is given a "full and complete" hearing in September.
The delay will give the convertible debenture holders the chance to organize and file a formal complaint with the court – something only the banks have done so far. Lawyers for the debenture holders asked for more time because many are retail clients and therefore harder to mobilize.
Some of these clients are angry because the proposal treats them like common shareholders, even though they rank higher in the company's hierarchy of debt and equity. In the event of bankruptcy or restructuring, senior debt holders are typically the most likely to get their money back, followed by convertible debenture holders, then preferred shares and common shares.
As things now stand, Yellow Media's convertible debenture holders will get 0.625 common shares and 0.35714 warrants for each $1,000 invested, even less than preferred shareholders. Yellow Media's advisers, BMO Nesbitt Burns and Canaccord Genuity, have said this is because they assumed convertible debenture holders would convert their debentures into common shares, even though the conversion price is $8 a share and Yellow Media's shares are now worth 7 cents each.
Until Monday it was unclear how Yellow Media and the senior bondholders will defend their current plan, but the courtroom proceedings offered a glimpse of the arguments to come. Lawyer Sean Dunphy, who is advising Yellow Media, said "a good plan is one that everyone hates a little, but just not more than [another version]."