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Marc Tellier, chief executive officer of Yellow Media Inc.Ryan Remiorz/The Canadian Press

The fate of Yellow Media Inc. is in the hands of its creditors, after the company proposed a radical restructuring that would see its $1.8-billion debt reduced by hundreds of millions of dollars and its common shareholders pushed aside in favour of its banks and bondholders.

While profitable, the Montreal-based company Yellow Media is staring down $700-million in debt repayments over the next year at a time when its revenue is in freefall.

The company is also investing heavily to reinvent itself in a bid to compete with Internet directory heavyweights such as Google Inc. and Microsoft.

The phone book and online directory publisher said Monday it had reached an agreement with about 30 per cent of its bondholders for a deal that would reduce the amount it owes and extend the time it has to pay it back. New shares would be issued, and the company's existing shareholders would only own 17 per cent of the recapitalized company.

For the deal to pass, two thirds of its creditors will need to approve the arrangement in the coming weeks.

"The past several months have been particularly difficult for Yellow Media and its various stakeholders in the face of increasing secular pressure caused by the rapid change in how consumers search for information," said chief executive officer Marc Tellier on a conference call with investors.

The company's problems mirror those facing other publishers across North America – customers are spending their money online, but aren't spending nearly as much on the Internet as they used to spend in printed directories such as the company's telephone books.

Now its lenders will be asked for patience – if the banks and bondholders who own the bulk of the company's debt refuse to recapitalize the company, it could be forced into receivership.

The company has spent the better part of the year trying to figure out what to do about $700-million in debt that was coming due next year. The proposal would see debt maturities pushed out five years, its debt reduced by 40 per cent and common shareholders watered down 200-to-one as the creditors take ownership of 82.5 per cent of the company's shares.

While anyone still holding the company's shares probably won't like the swap, their holdings have been largely wiped out in the last year as the company's shares have fallen 97 per cent to 5 cents from $2.37.

Yellow Media had to cancel its annual general meeting this year because its shareholders couldn't be bothered to send in their proxy forms, making voting on any resolutions impossible.

It will now be held on Sept. 6, and the stakes have been raised – Mr. Tellier said Monday he would lead the search for new directors after the board was relieved of its duties.

The new nine-member board will include Mr. Tellier and at least two current board members, with two more selected from its group of creditors.

"This is by and large a company for creditors," RBC analyst Andrew Calder wrote in a recent report.

"There is motivation for both company and creditors to come to terms in short order given the ongoing declines and the potential business impact from a worrying financial situation – employee retention, morale, execution, serving and retaining advertisers."